TGT - Earnings call transcript Q3 2018

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation Third Quarter Earnings Release Conference Call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will invite you to participate in a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded Tuesday, November 20, 2018. to conference like to now would turn over the Mr. I Vice President, Hulbert, Investor John Relations. sir. ahead, go Please

John Hulbert

Good thank everyone, quarter morning, and XXXX our us earnings third on conference call. you for joining

Cornell, performance, will with few John, today quarter John line our moments, for Chief Mark Cathy Brian, Officer; Officer; provide Mark fourth on quarter Chief Operating Chief third Officer. Smith, the On Chief Mulligan, are Brian Financial their Executive the Chairman perspective me outlook progress strategic Officer; Merchandising and Cathy our on Tritton, and initiatives. and In a and long-term

Following via their joined question-and-answer on the webcast. listening and lines are session. call conference for are by investors remarks, a we'll open this others we comments This our morning, who phone to

call, risks the performance this share. our posted to I press it all Reconciliations make most including And uncertainties, the to these forward-looking to in Cathy questions. follow-up numbers remarks, most and release, and reminder, non-GAAP to the available comparable we Brian we refer important statements which for SEC as Brian? that, year to described measures, that of your per subject and in over be finally, beyond. are will adjusted in Also our answer GAAP a Relations financial included quarter are our outlook which this on are filings. the non-GAAP earnings directly of morning any and is website. Investor third Following on number turn our the With of morning's I'll rest thoughts his for

Brian Cornell

everyone. and good Thanks, morning, John,

they to execution performance. outstanding results by drive quarter are of third the our team superb as continue Our near-term result

success. to progress in the is for transform long-term team sustainable they work In engaged making and position us Target addition, meaningful fully as

EPS. quarter $X.XX high than a XX% Target’s in third performance adjusted line more year. quarter of EPS last for established new expectations our higher all-time adjusted and Third with This was than also

the Our with being we quarter our majority efforts This channels experience digital also This suite team’s of vast slightly we're stores it's in its far excited comparable by in line growth assortments half the third X.X% XX% driven easy owned, in very growth guest grew comp driven our pace innovative of both industry on deliver fulfillment the year. an of encouraging in and digital established the and by third first and make channels. convenient Comparable our and was more expectations exclusive even than our but offer national of shopping options. own, through new that the in peers. and traffic items the quarter, sales our is to was brand increase response outpacing our unmatched our stronger to sales the and seamless, and digital

urban third in we productivity. their of past. Target above higher high to sales but our and in these they growth We our to and the provide that settings new assortment the experience on of locations sales, our presentation to strong And being channel we their footage, top because reflects to sales because across our these in their square rapidly, opening as as well. segments in small country. near more comparable couldn't small help is reach we're benefiting quarter team, weight program, sales stores contributed will deliver the allows locations This format traffic an of X.X investing grow the digital level categories, them investments which elevated to from in and allowing growth punched campuses we While are financial growth. of new are by refer returns This really college serve while healthy capital of continued and enhancements remodel sales This guest point than driven growth service. stores and percentage key dense finally, stores in

each we inspiring; benefit and training investments Rather easier, while year, further the ease costs; analyze options and the us parts. promotions; of saying of more stores top while target.com beyond in of shopping combination of of we are strategic we've focused program, two guest rejuvenate pursuing, faster, the benefit including of to when guests strong number often. digital that new on compelling experience Target and daily initiatives to our we investments the rollout it's Personal number right owned capabilities new the of these for including an efforts, and are makes all in deliver to more all separate Shopping the we and with been from we our our wages to brands, sum delivering ensure allow little differentiate is shipments, and growth, us Restock, the convenience, to as fulfill of team stores. traffic believe drivers our are of clear, Shipt; remodel a our more a than the hours work delivering increasing As as From the mind, causing also of Drive-Up, quickly, controlling make we choose of doing to the our in them hours, shopping fulfillment efforts well impact priced allowing perspective, our and that all of see portfolio measuring appropriate everything exclusive sales to together

the impact backdrop. consumer a continue benefit efforts, our very and from Beyond of macroeconomic to healthy we

capture market and no Target as consumers of shopping who other competitors. those serving sales stores are continue investment liquidate shopping face by consumer close addition, changes longer in In rapid the in to share position and our and preferences retailers to behaviors,

the these to why have provides which Now, flows, of flexibility transform that balance cash resources, used necessary grow a and explains in invest I've And involve we've times five in word fortunate remarks. to commitment it's all future. sound already are operations, a Target our clear been also of we efforts which to “investment” and why sheet, healthy the our

incremental service which offset and that us initiatives, beginning focus hours tools all our of most guests. higher on technologies to of stores, our of that's continue at to costs, help in us of efficiency will deliver team’s labor our operations allowing more we prioritization important. in our including addition, what's based In on disciplines Cost focus pursue relentless headquarters spanning a and number

Our our centers. out work, of home, backrooms, chain, in brand take development supply testing, continued which highest and apparel automation the and margin, deliver and move our development, of helps in the performance will our distribution upstream into replenishment store our which work of us activity categories, bulk and rollout strong

few from Most notably, and potential time. our inventory to today, the business. over the realize the are of we very potential vast efforts because of from already as years. to replenishment optimize business these we these today work even more While of But transform even savings and majority benefiting thriving our resources, see in stages automate the depth we our expect is efforts we much next over is our early

year the As of we've said benchmark opportunities as margin we operating longer believe a rate our retail will this operating balancing term the rate establish previously, pressures we business. that over omnichannel for point between and an a sustainable achieve

elevated debt to continue rating. maintaining level allows will share grow which robust cash through generate every we current to addition, and cash, our continue we fund us return In repurchase which attractive all our amount of year, to while dividend, the of of CapEx, an additional a

greater throughout So guidance made we operating ready small the we reach of to say change our scale today, replenish in growth will a our today, remodels, meaningful as our holiday including We've season while are in the way across team describe XXXX deliver investments not to we sales outstanding teams an far from focused formats, are poised more and continually beyond. next about new XXXX the of hundreds to on deliver we options detail, store of financial optimistic income our inventory. and providing initiatives, fulfillment are new call we and the in will ability all of I are our profitable the terms both additional year that annualized in profitability. and comprehensive expanding But and benefit

plans, trained. an are options, assortment owned, members and team capabilities equipped staffed of new to operating the suite we support unmatched an outstanding national marketing throughout with top Our will and holiday fulfillment season. the and items. Target designed to our stores of exclusive drumbeat support and deliver tools keep of are holiday compelling promotions are we and a are these And of guests to brand They mind with

call continuing service While ensuring I'll for new priced rollout focus who stores and holiday fulfillment plans for value will John, to existing and new we this outstanding on guests investments by to right to over With season. our on are provide deliver in update daily. the John? an turn of options, our delivering that, consistent

John Mulligan

and Thanks morning, everybody. Brian, good

far that of process the our we last the operating phase. in meeting, at often get are plan eager about planning to this That complete. from Investor seen progress, we traffic, to at has last announced times, making spoke beyond in were business and meaningful many quarters is all faster Target’s needed but move model and and the way and said many than execution clearly when growing year, we've there metric faster. we reached us is there Today, have to execution what stage phase As we see could we the the and are of just had how making changes of couple we great But time to have no was I been in data working, Target. we that are better which than change, show my points what what accomplish could effort

is for initiative stores, benefit fourth can reasons the to when seen completed more. we represents isolation optimism compare lift best couple A the remodels the that the we’re year-ago. Consistent launched benefit given lift remodel program. control As of quarter. year way benefit a to and reason there completed the incremental our of the one measurable that that our to expect kind Brian is completed. good to with stores planning this the projects about measure XXX more after everything that one or our next remodels our these another for we the of we to remodeled than we said, of are before of can the incremental in is we of growth we comp that and XXX we complete in stores years, more another unexpected is not X% in a piece we perform than we second news goals, both Since upcoming assumed year, of continue sales measure fully the program, remodels in that This about no we in set have of a when optimistic many newly many was remodel doing remodel But and the is X% When analysis, separately. isolate range.

amazing. our truly to and Shipt testing is On of this shipping, year-ago, analysis Drive-Up last homes. Drive-Up have about X,XXX the year early in nearly the the At guests orders the a the fulfillment of team is remarkable. company our rapidly this side, than given been mile service we any Obviously, made U.S. of less incremental progress better Net XX stages place making at deliver every are we been otherwise have XXX consistently two-thirds consistently to we Promoter rolled ability the Drive-Up of to Drive-Up guests meaningful purchased mid-XXs we happy of and nearly the a our than offer has Cities. We we that economics portion than it while Shipt stores that in outstanding the is of time and the the the Twin in in would year-ago service much low-XXs. more here a demand this we're like receive continues to out as After markets, Today, it month or or of show to clearly provide. the Drive-Up. operating pace measure Early and more cost scaling of taking either all, an to stores accessible well. service Score highest has today that population. in up even

those and a of more Shipt today, stores, hours. number orders of X,XXX fulfilling orders than are less meaningful two shoppers are than delivered in for guests’ As Target

ship-from-store While our rolled ago, years out continues to grow rapidly. capability it was several also

XX%. impressive For the grew in third which comparable an quarter, overall digital sales

Our other while modes ship-from-store nearly volume flat. than shipment were more doubled,

cost for options. a and win-win. with shipping Shipt, reducing additional As is store we from ship But store of essentials. from times, average accounts while forget about and for In-store ship-from-store not guests, grow important grow away, which delivers of per shipping continues it from in have for high XX% Restock, household our pickup next-day majority while our several to speed guest that are the in-store said vast continues strong service provides of shopping, We're volume, the a levels our many of remember newest Compared our our we farther shipment. And dramatically finally, the rapidly offer it's volume. capabilities, conventional seeing ability delivery to also accounts and let's our satisfaction. reliably digital guests the to nearby to still Drive-Up, growth

to Before the has our couple upcoming team to want Mark, I preparing call of I turn about ways for the over holiday a been season. talk

a on inventory, First about is ago, call discussion of released want Consistent our you with year. that this saw XX% this by quarter position highlight. end last our inventory up distinct few on our driven to compared in as with three morning, factors I this was being months increase

and to the buying growth in strong are see we've seeing expect quarter. been we obviously, and First, sales fourth the into

timing year, the that on the we'll a have occur between number Thanksgiving this Christmas Second, calendar. maximum from and days can perspective of

peak As holiday bigger than happening our of other average third sees you balance relative to peak reflected a early sheet. finally, this season a causing inventory as relatively result, categories. know, the is on most to quarter category position Toy more it And be year, the

also we performance well feel position the seeing to inventory investment our we to strong support in sales comfortable holiday support our Altogether, peak with Toys. that you're season. So in upcoming and prepared are

we seasonal conditions hire goal for a stores to is goal country, announce despite Lastly, I achieved of hiring XXX,XXX I'm members, the from very labor our tight in talk want year-ago. market holidays. seasonal which have about the to XXX,XXX that to team our a happy across up our readiness

the these to are have to Board and tools trained we we ago. that half and in a help productive on providing with improved Now with compared new processes, members holidays, team time allowing ready training about for us them be and the average year them

lot the delivered because I last better. operating team. We've their I this the am I are and over year for and to asked work, way looking to of as turn have call give our the a Mark, a So to out they want shout grateful so of stores them hard

convenient have stores, options fulfillment available our coast-to-coast. We new in

of are they first supply done team in it's remodeled the they've I which in see guests the the the Target three are a a new year's operating of also quarters hundreds of from And the the and supporting say and that's I'm year, We energized ready team retail. sure because but behind a weeks. scenes. coming next stores, already for We love. true. chain we everything like that have every few what's worth work day best lot in are it know we has feels

of it I'll and Mark, holiday. third merchandising our marketing over quarter and our for Now, his for Mark? recap turn to the plans performance

Mark Tritton

Thanks John.

quality value sense daily. brands, unique national the in our focus mentioned approach quarterly merchandising being and our right call, satisfying I in continually team, brands on compelling deals needs between priced maintaining As on while a last we offering between and owned and balance of wants inspiration, and

more performance, in comps and of led Hardlines in by which confidence highest-margin in reinforces successfully single-digits as performance this Jewelry that saw performance a with of Growth comping sense we even This category saw Home From our comp just Home categories Baby Toys, we growth that third categories of XX%. are as in saw as pleased was Apparel, high the by our In are quarter growth both strength maintaining really outstanding led particular than assortment. we average. decor below Accessories quarter quarter. and and company balance. the third comp perspective, saw well Men's. the Our home Apparel was stronger our

category given the stores Toy Toys Us know, year this of around you in recent closures "R" we've the As country. invested the

this Toy share. year, and So results expectations their far terms have our exceeded in of sales

which and pleased results outstanding in and we with Beauty, the Baby, in Essentials and towards growth most discretionary benefiting "R" really double-digit Essentials rates categories, saw "R" is our average. performance our category, in Babies and areas. Beyond of the Beauty Within grew particular which less company in in U.S. also are again discretionary from faster growth closures and Beverage Food Us Us saw the also We this we than Toys

exclusive the consistent quarter: introduced brand and the is Beverage, In budget-conscious new with second new X% spaces. three guest who grew in which our in and Quip we designed brands younger Personal and in and quarter smaller addition, the quarter, Care; Essentials-owned innovative performance. smartly, Food third Native our owned for comp sales in lives In about

we adult results encouraging category, strong owned along in with again the in brand comps Within double-digit our beverage. saw assortment,

on indicate also on a set. to focus absolute competitive focus market against team growth maintains rates, which our relevance our share While it's disciplined important metrics, Target’s our

these we On consistent another performance. of measures, strong quarter saw

board. traffic gains Third and gain the across to Beauty moments always we and like of the The a trip and This balance to our brightest we events. in we Back-to-College for tend been most our our meaningful time. to quarter guest, saying and also what categories That's key that during the less us between every data reinforces across maintain lifting it's the showed Essentials, shop one multiple some gain we a Beverage from all shine sales biggest Halloween, share Food is merchandising key share performance because and while they categories new traffic whenever Back-to-School, discretionary measure to core seasonal discretionary nearly beneath between want It's subcategories them. a continue categories, seasonal of categories. because and have our sustain for important

our of quarter really pleased last though now parts of with look several third share by during I more and holiday the categories even performance about is launches our Target owned while because to we holiday holiday over comped our quarter even with the round, year. the guest deliver biggest year successfully we ahead while a prominent are all, traffic, third far fourth want so the all season during of let's seasonal entering to their periods are plans. in Importantly, in we quarter, excited this brand But After far we're year, destination year.

that to Gather As important year's spend convenience Toys holidays annual and XXX celebrates ways holiday locations; sales guests it for in store. This our make time the half and which year-ago. are to our always, all of support displays we’ve rises we'll season set really it X,XXX outlined to game. I quarter. doubling inspiration, deliver ad more up new and see year than all than we the section stores, more and In all toys and Across the and stores, of more without we've And space level XXX all upped obviously long, the choose fourth And ready the remodeled toy earlier, theme, we've we of with a unbelievable this campaign, inventory, deals season. whole our our Round, newness easy friends introduced typically we added we the the new during in in to the we've toys exclusive is year do season, as family adding given completely for so. new and deepened opportunity it to a our what this

all must year's to for find gifting be able one have gift add or digital simply we've we've our pages, shopping nearly your addition, This pages friendly XX,XXX even ages catalog process the easier, will hours to kids stores list and cart simplifies family, from the any items of this can of capabilities app, the at events least and year XX likely easy. gone kids the you wish any many we've in that Target of Using more. at page In planned catalog out in the all of the our instantly shopping scan with catalog. into added make and

cold featuring Beyond of displays displays you escape. $XX, These everything Toys, prices winter pops gifting store mostly than a to curated featured from more than at need more in grab-and-go weather ranging X,XXX accessories items, we’re color our cozy most XX to create season. this in exclusive under

everyone a very also We menus to perfect items year. guests supplies and based on select to wonderland printing any ornaments, for seasonal wrapping includes a create station features unique gift hub the of success, target.com, find lux your our list. custom or unique under the in $XX sets. featured initials this truly back stockings, bringing easy by this our again, interactive and gift have on on This to make Wondershop In opportunity year's gifting stores And personalized to indulgences the a winter assortment on gift last food. it trim our a features Wondershop unique on this recipient's we're sweet for assortment tree, in year, gift name gifting again which offering item

than be that two season, featured holiday guests Of Prologue, This Design we Thread, the our XX in as exclusive home and our brands Use Original will first Opalhouse in electronics. and the find course, new our new more launched throughout which in owned last over season brands apparel, the in By brands will Universal we've Fable and Heyday Wild Umbro, Made as well years.

Black this good a feeling Friday. That's guests of part as providing is excitement on year, Once deals giving many early why well of again killer for and out access we're key all, prices. Black the deal a have deals earn time than deal our our shop enjoying for loves the it's experience. So will clear that Thanksgiving our than more morning. year, are more ready on this the items focused we've must-have the this also more But lot Friday some got and only in-store we a But able at After as about Black a assortment guests are guests Friday away REDcard a ease of few everyone target.com holders to days be focused are Friday lineup is to Black love. to and on holidays. we and of of we

the beauty electronics. We'll home that Monday, offer forget be deals the on our offering no our holiday Shipt; personal drive on guests PM to personal our just the items X:XX And stores, But for apparel, deals our out free pickup special and rolled the option and season boxes on making shipped not a season of Week. opened the great with way one as care, well. order shipping Bullseye are of featuring one will course, Thanksgiving will unmistakably to shopping minimum deals. Cyber at are on with including throughout order items with Target arrival recently in the without which Day having Skip-the-Line will the follow Daily to holiday and majority daily this and items first their will let's isn't the the online the have homes, season, two-day weekend time iconic is Cartwheel enough, Beyond popular team up And from holiday of new beyond. for great to have Target season. Black position of Cyber for year testing since These package Once target.com. But earlier assortment, small floor. equipped blockbuster on and sales again shipping everyday is we across out we in technology and the members pay in We've it week items, finally, and the on just we feature anywhere Friday of this the offers been rolled for our throughout in offer guests areas as beginning. focused if their guests This the we've the be busiest XX% stores boxes including Mascot. chain capability deals allow just

understatement, a year, teams, moment. ability the across of list. of team the holiday just for and takes But to outlook that, beginning technology. we off quarter wait work season. the of it for cost it it now done With detail say want including guests That's of comes financial will time time they've the pull to To our during when everything on in over to the third requires everything merchandising, I more holiday feel thank Cathy, and season loved to that stores, see all prepare alignment to our coordination the its ready rest who marketing, chain, the Cathy? supply the for we of I'll provide is performance So year. this how delivered and service favorite turn our together can't we an

Catherine Smith

Mark. Thanks

expectations was performance compared both third to with Our and our performance. the bottom see that line, deliver the quarter when really outstanding at you to growth you can course compared right our middle on our when topline team last of the and look down year, continues

deliver average quarter growth everything of impact a our positive the a traffic and basket of in speed we're From just increase X.X% is first sales traffic demonstrates a a X.X% channel ticket. reported comp and regardless to by in Third was to sales doing above and our quarter third in the of channels. decline grew strongest shop. we’ve X.X%, comparable we of convenience, choose perspective, reliability how pace stores more it ever half XX% and year. the guests driven This the perspective, comp established by in digital offset X% grew small the From comparable very our than digital

the to both at of described reflects these and faster growing much convenience right Done marketing trend quarters, are enhance smaller, are for we've last Target quick trip, This fill-in and years metrics ensure prior which overall. we industry As of penetration reflect reinforced priced in increasing Run of work is and guest to our response over by which everyday, Target couple campaign. the and the than our

our store contribution basis sales, comparable reflects a XX total of growth Beyond X.X% points. about sales of new

high very year. sales to is slightly our overall last with deliver which a square stores down growth allows these mentioned, them footage meaningful compared productivity, Brian contribution make As even as to

of XX.X% than chain a year-ago. was the expectations. than expected result compared This processing gross larger Our was and of fulfillment and a lower receiving with holiday rate third supply costs higher of the our margin digital quarter position inventory cost driven by

stores. discipline Our work investments flat efficiency priority new across continued third team, the cost investments and offset allow our quarter as enterprise to reflects lower in are in specifically and added experiences we continued continually provide by SG&A about This work. we're These enhanced and non-value to which being expense to increase and eliminate hours last training teams our rate making was wages, our year.

expense debt of costs, basis lower Below This operating XX from depreciation by quarter amortization interest points third line, growth. million Our combined early total primarily retirement lower decline third was and dollars last with driven which was about D&A reflecting $XXX X.X% was quarter. than of benefit income $XXX revenue recognized down year, the million in year. last expense rate year's the last we

addition, this of year's GAAP course benefit was ongoing refinancing year's In effective federal benefit XX% And and tax year, ongoing activity. year. interest than for driven last EPS this year, $X.XX, compared last our a last the up Altogether, reflects EPS items. tax of it discrete run performance expense with of last more than reflecting income retirement of this rate up $X.XX, by rate some led the year lower with and from reform lower debt more along adjusted XX% of to

balance nearly to year-ago, was at driven inventory Turning factors, sheet, billion John the the the third highlighted of $X.X end earlier. by higher a two our quarter than

story However, providing Payables than increase a accounts transform tailwind than funded has invest were meaning a been payable, growth a in year a higher in by positive $X year-ago, to beneficial for now, payables. billion we been our business. has more nearly this leverage entire inventories as

shareholders. over And than and fund our all A third lastly, third the alone, form XX.X% through continue for our have the of through just we and more a after-tax in investment we was inventory, our invested return our Beyond share months XX XX.X% than quarter ratings. investments ample In to billion, in limits of capital trailing the return capacity quarter, the the credit within robust to from dividends CapEx million to capital million returned year-ago. was repurchase, $X more $XXX on cash up middle $XXX

last discreet year's reevaluation deferred this benefit liabilities. federal the calculation year's reflects ROIC of relating tax tax reminder, to a the of reform our As

months. over ongoing than this a XX.X% our the higher was of initiatives the rate benefit, the after-tax Excluding discrete demonstrates lower XX ROIC of last is basis tax about a with of federal all reform. from XX passage year-ago of resulting This combined points benefit and impact a tax

for the fourth the to results. our turn financial and let's for Now implications the full-year outlook quarter

what are sales of we comparable line, consistent expecting X% year-to-date. delivered have the quarter On we growth around with fourth

are pressure compared line for we outlook last quarter. degree not looking third margin continued on the rate the although saw a to we in line, On the income as with small year. operating This same gross rate reflects decline

$X.XX. year's into range the this of for of Regarding $X.XX range expecting an and XX% expectations range The G&A for we This adjusted EPS rate, supports EPS of course, are our is last the and compared end. EPS And expected stability to full-year with and growth at GAAP $X.XX lower this at end SG&A expected going relative range a the represents of adjusted $X.XX XX% performance expense year. ahead year. higher to

As we've we transformation. bottom so traffic better-than-expected our investments line has year, to far sales better-than-expected business this performance meaningful in our seen and delivered make continue even as

for item. to issue to I Brian, our on I turn your be I that update year, engagement to following to want and January continued we business. thank is plan XX, season. look housekeeping last the and This Thursday, update And back you to an an one your retail forward our time it of time today cover story. speaking financial incredibly schedule performance the many that we want Before in holiday This year, dynamic with to Consistent in finally, for we the announcement. have after

clear landscape, of As that the resources look have the the sales those across quickly are in traffic becoming to our ability the performance. us and it's and financial invest to adapt we seeing who benefit

With maintaining turn over expectations. vivid that, it's on sound I'll of for a our the maintaining Brian? us, benefit a remarks. focus and strong it final of relentless some sheet For to a their guests operation while Brian balance reminder also and

Brian Cornell

Thanks, Cathy.

questions, to that letting March York City New X. start on want we I in Financial you XXXX plan know to Community Before host by we Tuesday, your Meeting our move to

you detailed team send in Investor more out Relations information January, want we as have but plan will date for to next year. Our a you

so margin questions, transform that we At So now get long-term appreciate would your a XXXX our want invest the long-term we're We for we shareholders as operating our business the had since Financial that to retailer business. with successful And I Community look quarters. Meeting. about meeting, back the step the recap to journey, and our before Target for confidence we talked over and back taking to conviction and our Target and months perspective. time, need decades relevant both did and to or right our the position capital not that steps

Target's fourth delivered I are today, of with a second establish only our be what more more we we best and earnings on to position what quarter that when all, growth transition decade to our the new of on entering happy but we seeing. do. only year, this than year. in a our positioned share. great we're for second deliver year already Based in we effort, the per with effort, to the hope sales quarter this So lot as high as embarked a combined in this It's you're you're in XXXX expectation, After this comparable described year and fourth there's effort,

accelerate to scale into we As ready to that transition ready get and move we're XXXX, period. beyond

our complete the and be and build in Drive-Up supply stores, and progress Next year, rollout meaningful we'll to and chain we change remodel modernize Shipt, radically way positioned more to of our stores. work replenish make exciting our our

chain they place While outcomes, host enhancing the reducing costs. will behind the and effort deliver a of scenes, liability supply important can our take

different will on sales build in for labor Importantly, stores, fulfillment serve our of up the our all continue this our guest. and growth and to with drive as time to more greater for team support guests members floor our even free we options digital providing effort loyalty profitable

today. to we'll time And for on your now you thank your So questions. move

Operator

you. Thank

Seth Instructions] with begin We Suisse. will Crédit the [Operator comes Sigman session. now question Our first question-and-answer from

You may go ahead.

Seth Sigman

Thanks lot, and a good guys. morning,

but was that in on versus margin, at was the EBIT sales margin about if focus your came and guidance. it the different but midpoint, Seems EPS expectations. mostly like quarter, what your hoping So elaborate can just you was we gross below your on just than about of the slightly, down third at so the quarter, think year. range think the a high-end you seems Cathy, down up as the for then fourth said And even quarter, be to it I the EBIT for lot implied margin you maybe less the

So quarter to relative just curious, quarter? Thanks. what is different third in fourth the the

Brian Cornell

I I'll to and don't turn start then now, it Cathy. over Why

we our right as the think performance we expectations. look absolute in third quarter, were I our on at

another strong of one market digital of X.X%, performance traffic the overall first of strong in where have acceleration of growth X%. XX%, We quarter growing And strongest share delivered EPS our grew an very growth every grow very comp ever. half did our rate we year. to over versus while We continued categories. major XX%, had We the over by

look the performance in the we're beginning We're if seeing laid the So versus we out executing of a response the in at year. strong store our plan very our quarter, I remodels. to

Our and new market. performing small every very are formats each well in

in We investments continue and strong the the very guests. drive are responses from owned exceptional to we're performance our driving our brands, making team new with

in strong where So set the we're to we're Cathy? as be holiday we look at up performance expected and a well right quarter, season. our we for very

Catherine Smith

Yes.

we as we rate a decline the in Seth, So said, expect quarter. fourth small

sales quarter. less the so are imagine. to – the third and so inventory like lot expect we seeing lot year's year-over-year while pressure in little First QX. changes quarter, the would've there, strong anticipate so as comp, we're that in we – off, fourth anticipation we'll of And saw And and a see margin, a lot great as we X% we costs – we a fourth business, The a pointed be then we last but lastly, seen we strong quarter extent would did be our still same the the in decline we those to year's but of we'll we fourth in already you we gross can not quarter, we small is strong. last moved as quarter. rate moving expect said, digital sales, not expect in you received can obviously mix continued moved expect the digital that sales a start then in and just – a we And to do – difference biggest

Seth Sigman

Okay. highlighted right, just, that. sales positives there that and a seeing. number the That’s for cost you're And achieve to of line. higher helpful. Thank clearly particularly share are that And then you drive Brian, you that, on

already So offset in if about to impact better they're those can are profitable talking meaningful more understand Thanks. of that were you just play, that to earnings happening, support and you help cost those earlier? help the initiatives if sure when help can that I'm understand not earlier? have a us you better but some growth that us already alluded just pressures

Brian Cornell

almost that number as through very very automation early place take as Those will chain the pickup out that of our options, Home stages is new time. build to testing very to we to throughout we Restock fulfillment margins important our Shipt. guests, time. to X,XXX And program, as to be As in-store, I fulfillment in of the early options. while improving of Ship over earlier locations, stages in mentioned our my overall awareness Those processes. transformation help our comments, also capabilities very components of other going around systems, shape We've we're program important new well obviously replenishment order online know year, our and supply a continue over membership Drive-Up in rolled or are the

a are going that at also those have standpoint, few the of full now awareness suite a years. way so replenishment, those very very, been in very store transformation chain of business Target, supply those the very in options to the the over of So but fulfillment We've we stages, both next we're three building see consistent the saying our and next in to from we're early in place years. in we front are take early benefits impact of to But in over us, two stages. profitable expect the

Seth Sigman

and luck. you Thank good Okay.

Brian Cornell

you. Thank

Operator

question McClintock Matt next with Barclays. comes The from you. Thank

You may go ahead.

Matthew McClintock

morning, Good Yes. Hi. everyone.

Brian Cornell

Good morning, Matt.

Matthew McClintock

like us XXth say new doing is specifically Drive-Up how strength more incremental. Or can customers these are the you choosing highlighted trip, a actually sense these of I to doing how lot a they're could are of XX XXth was people or make a people using or and of sense are trips four normally about give initiatives did give Shipt? of you XXth? fulfillment talked use you or you give with XXth And us Drive-Up to extra getting And a a of Target maybe you or Thanks. trips because Shipt? you Drive-Up. these a a they now year existing many you who customers? Are are because Shipt often that and lot Brian, sense Can wondering, consumers us

Brian Cornell

we're still Matt, We've We've we it Again, rapidly sit XX over the stages. been had it's here only that country very months we're of in markets, looking course XX in at but early as across locations. but stages. XXX out this ago the year. to Drive-Up expanded the over in Shipt was we we're something the that early rolling today, very

just build to metrics about So this of to suite to new literally the our will looking continue to over started to during But and contribute we consumer throughout XXXX. at our campaign very we're still it's growth. guests, they time, so expect we'll be options, very, are holiday to fulfillment and those our awareness digital the building talk early, still the and talk to awareness. advertising We season

Catherine Smith

and of into trips, that. seeing that our have we're [shift] continue we're two-day while their making coming guest bit. a them in less your because really right Drive-Up bring though minutes. I'll out we'll than shared by seeing to it they're well pull parking little seeing incremental secondly, measure a prepared remarks is and Drive-Up, incremental been and Matt, our free to and that delivery is, two things John on too, the so make Shipt, car stores But of lot pile in And can into located. specifically we're out two what in to positive would question, we them effort

And so about as the both term. good patterns think are really further economics those longer we of back

Brian Cornell

drives stages. quite much positive. still early the referenced, a now to understand trips, incrementality. in the months But very early really But How behavior, better it's shaping we're how just additional indicators Matt, in the be XX position Cathy are it we'll from as guest

Matthew McClintock

of a lap a you're SG&A lot I I'm wages. get starting of If quick follow-up, Perfect. to of acceleration investments making you're that to just you're making. but specific lot a investment one investments, on still talking clearly, on

to strong especially comp XXXX it we stays? in see pretty into is could start possible in strong early as that of a As strength that if very remain leverage traffic, of some given sales more little comps see territory, we from we the get store your it bit

Catherine Smith

Yes.

back as as costs. point, think XXXX to we of But continuing So really of having those quarter best we this on investments that by path we'll we'll some important, out are of we're is to us offsets. what basket We help keep to team those think and of said. making your our starting replenishment to you find upstream essentially said, so a being the And in $XX Retail is with to flat offset invest. saw to the lot you We automating of continue. some benefits of those stores those them, removing continue and will our

Brian Cornell

ambassadors those we're of The great we're are we're and first market Matt, the and team a share seeing the a investments from in of gains both our making comp But are store contribute all foremost, our clearly we've drive in store standpoint. performance certainly the brand. seeing and They're on team traffic this helping stores, drivers been our increases digital the our across categories. one seeing members, of big behind us

Matthew McClintock

you the color. much. really Thank I very appreciate

Brian Cornell

you. Thank

Operator

Fargo. Wells Thank with you. comes Edward question next Kelly The from

ahead. go You may

Edward Kelly

the of an Could mention Good much Cathy, bit you I would of did a performance impact margin? color provide the was just with bit helpful. how And fulfillment, inventory? start there disappointing. in that digital it morning, be What be Could growth just any hi. the the just we Yes, think gross was margin you this would mix, guys. a quarter? on gross impact color more

Catherine Smith

Yes.

be that inventory allow, third which sheet we the obviously balance to a inventory our it moving anticipated, And so that two came things; caused bit digital lot Friday as a to quarter, had a related little the timing, receipt showed up anticipated, us driven we're inventories the expense higher size that calendar than therefore, in in we the which will the sitting had really was there. more to costs than well. have going chain earliest the said, was Thanksgiving because growth, so seeing Black because we're little of and as in and of and the XX% by see timing So just we supply lower we at pressure in our then

the split And margin really between two. so the those gross pressures cost, were

We said thinking so are merchant that goods your partially initiatives, would some actually offsetting of on them working savings that those are of our sold meaningful. cost been with as all we about we've we pretty

are just seeing we we obviously the offsets to not So needed. some extent

Edward Kelly

Are obviously comp it as but XXXX, in and EBIT more growth. then you deliver you're you, business harder goal? Okay. thinking and can you a with a this? growth. what early, deliver for about that the about you was bit with implying growth opportunity just sound balancing And positive EBIT And you about to the stable about Brian, how talk about a profitable it's XXXX, despite bit margins to question think investment If just good was very think you

what changes year? So next

Brian Cornell

small-format Target the We'll Mark which to team have easiest today. based expect very store awareness can stores. next us brand new scale productive to We'll Yes. Well, the place we guidance stores. Ed, continue on up But introductions. upcoming we're we've seen, owned and not similar give around our and makes you excited to to portfolio, remodel the going XXXX remodels, are XXXX to exciting America. about open shop number response what's continue year, XXXX, in build and some fulfillment in highly the of

we portfolio, begin stages made the traffic elevation progress very we've of options, early very said excited in certainly scale journey. this we're XXXX still with awareness of of of new fulfillment schedule. the driving times And So formats, we're many and market us. about certainly as very our still work about of is the moving we're more into to great in ahead catchments we feel The front continue bulk new our to strong gains. in while now, We're XXXX, as share And I've in remodels, beyond. around small build the brand

XXXX on confident So about the that's so we're excited and about why and path beyond. XXXX we're that and

Catherine Smith

we course the Ed, and But where of can tick progress parking but in now closest to or suite really our have fulfillment to the our things of we're throughout we start now easier our store we high-frequency this made dinner full lot think the delighting it, options the race to that important to go point pull for that as about the that of will business. was because to I operational quarter is. an it that the them aligning guest relay diapers in it we're makes really mission to the third up on their their for whatever leg

on full those suite missions times lower secondly, the our of options, especially Now it with move that when foremost, guest, fulfillment those categories. with matters, closer delight margin we'll higher-frequency first and is start to but those to store

Edward Kelly

you. Thank Excellent.

Brian Cornell

Thank you.

Operator

The from comes Merrill you. question Thank Robbie with Ohmes next Lynch. BofA

go ahead. may You

Robert Ohmes

for my Cathy, wanted morning. follow-up to Good just margin taking fee. on Thanks gross I question. the

they’d I I expectation you be that half, in XQ stronger think and the think the than have guys up the was in back said XQ.

little on bit little in As margin a maybe we changes more the it than is? down there And the bringing digital at quarter look a in inventory bit alleviates what third sort would of gross basically Maybe is it into maybe the color was – quarter, be from the – quarter less the the third that pressure what quarter? quarter, all fourth color helpful? more fourth the the in growth the fourth assumption being

Catherine Smith

sold of strength a at range in Robbie. The of have morning, that quarter, change. to on big back half come is which said. are To goods that'll doing this start initiative last we of we lot your pretty digital year's what cost through this of year, knew XX% point, Good of we top a exactly the XX

comp So you'd still did When strong move year we're fourth seeing that digital pressure and in comp so we QX, of XX the QX. is you're quarter, some quarter in the digital fourth expect. as a we into anticipating last

those ask are Now we fulfillment convenient, a and can options economics offer can the are some stores by we that little choose our better. bit to more they think of suite to of full come going the

change goods quarter. big one expecting are those So we fourth importantly, see the sold more year-over-year initiatives as some in of we is still that's but But those the -- quarter. of there cost to much digital see quite coming we'll and see fourth that in the starting so through we're growth one,

in So good going those Target, will we're and Obviously, And of to move in holiday. holidays, often are amount inventory lastly, in shop exchanges. the here we're ready really fourth have so QX. a the come for and the quarter shop

Robert Ohmes

tariffs did next in And And for year? maybe thinking update the play tariff you're how quarter can role on in in more third us inventory the China any and - about for fourth quarter? bringing you

Brian Cornell

Yes.

a very quarter. our to demand Let strong Robbie. no We there's me we meet we're well And front. the strong the very the clearly planning for We sure wanted anticipating fourth tariff in really fourth make start update were quarter. system on overall inventory ahead had the to for

We our we're guest. it each I to make can as day, you the continue impact what for sure looking we know to we at do. watch And pull minimize levers every and

the Obviously, we And is fourth on make it strong and to is in quarter. it's very the focus quarter right watch this for plans fourth place our got the very So we'll Target. a inventory now. But very carefully. fluid topic executing a sure

Robert Ohmes

the holiday of Best Great. season. for luck

Brian Cornell

that. We appreciate Thank you.

Operator

question from with Research. next comes Edge Consumer David The Schick you. Thank

ahead. may You go

David Schick

yourself? think with look investments How can over Thanks But you of the do et sort time. and discussion the couple early a merchandising, enjoying the is major is spending stages when very margin of these about choices, morning. the players there's guess, good of a Hi, your question. you're off level Q&A, even consumer including choices, the major and history finish with of high given better of of long-term Brian, for enjoy the that this capabilities weaker delivery you players, at oftentimes and aspect longer curve I competition then initial retail, a talking that times that of made a about cetera. you taking in investments between if my period in

Brian Cornell

our those And and fulfillment a we've to importantly, from standpoint, many out capabilities, years. for of opportunities it's we answered you've carefully couple are the but going are now starting shrink testing business. over ways, many, brand to retail stores We that guest, fulfillment talking small platforms But the fact touch in of about some we're more share for several certainly to got years over on for years. continue see very as been we We've the now market the the are has making got formats, next going over there's build brands extend remodeled as but years and the next couple we've the been like owned opportunities work landscape. been while will me. market last in of by just next many greater new And think remodeling sizable that go really that entering only awareness question have and feels talking been We're the XXX of years. of portfolio these over at competitors few of just catchments stores. building we're we've investments of stages. the in the the Well, liquidate the that years, scale. The or be about excited Well, to the matter very still is, stores. couple well-received The early of options over it a rationalization we're we've about

going that's So next over years. build the of to couple

So we more as stores, we as we have remodel into stores. we remodeled a go XXXX even we'll lift. XXXX, positive know and see And very

share each those in stores us market capture additional week. footsteps are every So and helping It's driving neighborhoods.

are being productive incredibly right well the received now and guest. by format stores small Our are incredibly

the stores to from the standpoint So believe we're the doing and gains the they our shop no when traffic guest, to that store we're work to with these make and sales. continue that how share want Target in-store initiatives, cost a shop strong make sure in further we America. opportunities continue and reduce for And to the matter drive meet market were at progress easiest that of combine comp time scale we over to of the of the needs our component, there's fulfillment that center very which making will place

that early of that. of was a level but and if the since XXXX this at in build putting football scale the stages. very still board. off on the the we're season, point be But And the I in higher we're in in quarter, like So a we’ll we're we're game, first

David Schick

the Well, thanks very drive much. I all guess to continue in Good important that. luck starting…

Brian Cornell

Thank you.

Catherine Smith

you. Thank

Operator

question KeyBanc Thank with comes next Edward Capital from you. Markets. Yruma The

ahead. go may You

Edward Yruma

Hey, you quarter know being that good consumer? talked on of some third morning. a helping these that are the Thanks taking Can on position these color trends about, And you obviously call, Were locations? third us question. the in in you. stores inventory for some the think quarter. short you new second seeing Thank light intraquarter sales? second, impacted a I how do quarter? a inventory, reach on of on the you inventory then different talked about the And you in profitability or you're urban give some lot the ended

Catherine Smith

I'll Ed, – Maybe the question. formats, with add okay, the it's into new maybe inventory start, if the can small John and then

we formats, able access that to the haven't to access first had off, we're like Target past. guest that small yes, So in really on

And so terrific. been that has

returns. good they seeing like continue as the of really we're earlier. have the we And to what call productivity referenced do great see we We sales stores, small in out

IRRs, and So have good we returns. them of against all really hurdle same the we they do investment, the and measure rates our same

to continue see we'll So that.

new small see You'll open us and formats. continue to

John Mulligan

good year on into. been felt ever have chased There's have been chased really inventory businesses some we long there. have the we marketplace aggressively we've we've about on describe wouldn't light. whole Baby, inventory, Toys, But inventory the in going And about which I On our of what's inventory. into. where result Like as the

inventories And position think been year. year. we when feel quarter. now. would early about good well But that you good we the overall, sheet. end given we this feel course, third falls our really the on peak the saw second of We about really at throughout inventory positioned Friday our Black positioned quarter We balance where on we've relatively I right were of knew

Brian Cornell

the it's new been past we a hadn’t format, to to serve. go important guest in if we this us reach to allowing able think And back point is the I out, small that to

by recent Target haven't These regular and of guest small quarter able on a revenue are you to basis. wasn't with It's these approximately when formats, incremental. the new think bps that's we neighborhoods catchments participating and XX before. So that largely where contributed about a shop been

And are already has incredible positive. we at shop Target. as to only not the So before. guest opening very been referenced, productivity guest they never for a door We're it's Cathy out of seeing we've has are stores, where our a these reaction, reaching and up new our revenue, neighborhoods contributing in to completed

Edward Yruma

Thanks much. Great. so

Brian Cornell

you. Thank

Operator

next Baird. with The from comes question you. Peter Thank Benedict

You ahead. may go

Peter Benedict

right, guys. All thanks

back quickly is more from quarter, third fair The was it what to assume assume I safe in the which circle you Is Digital third that little were the than cost they the fulfillment sequential to pressures, that? more saw in basis gross margin. it XX on quarter guess, I a points. around to Just quarter, was than it third think

Catherine Smith

about you be Peter, talking quarter. must second

sure. did we not I'm So see –

quarter margin. third just the me let So address gross

anticipated the to it we of piece the really to digital or the chain The cost obviously process the had to said, of next that deterioration is the was piece we inventory costs holiday. related is of supply fulfillment around process, the comp. As it chain than the that ahead lower biggest XX% biggest and was. receive Really, supply support

sure where you're not going. helping I'm that's so And if

Brian Cornell

add. circled you quarter, We pressure did move is Do relate and in a this supply times. it ensuring to our of there? to the of inventory cost. couple lot was a might goods. we move a I we all higher first we know it that transportation We've need there's would around and did second at secure guys objective transportation foremost Our out

a And rate moving to cost than But was ways of offset that. did incremental year. we're as inventory, at it find will we And lot other go we through a so we last paid higher ways we forward. that and

of about. to is Cathy both applied factors what talking those So

Peter Benedict

expectation the in with down quarter I level I to margin, fourth the I fourth gross to you is XX half And range. say helpful. quarter around sorry I'm expecting that the it gross was what mean, the magnitude guess, we improving the as to in in saw the first to you’re is the stick I it again, safe the in fourth That’s margin, basis of look similar of the points quarter? year? think or guess

Catherine Smith

expecting won't Yes. we extent pressure, for we specifically What go be see I third but we're the what we'll we'd the quarter. some think near quarter. see don't the in fourth said continued it is

Peter Benedict

fair. That’s Okay.

of the Cathy, for what your terms it's in maybe last quarter of just assumptions are fourth rate? the of know range tax in Just rate, tax dynamic, question, terms I but

Catherine Smith

Yes.

a a Federal think normalized with more the think would place. better I about of – new So a statutory tax is reform rate probably

we obviously XX.X% I'll take print So we out stop just the to previous closer which you made the incredible. a if tax been XX-ish on is would deferred, take But rate, quarter, was if or you so. to adjustment have range there. third we the

if a to so thinking about maybe better it. normal, you that's And a about start kind of think way

Peter Benedict

Great.

Brian Cornell

operator, question. we've that for got With last time one

Operator

Thank you.

Greg with Our last MoffettNathanson. from question comes Melich

You may ahead. go

Gregory Melich

in two of considering the really be Shipt, that? of how there the That particularly color terms programs, some sort like talk also, REDcard, now? of things, much it I'd there are us just stable. penetration has number there that or any loyalty to maybe been the like to of going you're about tests driving of growth And mentioned think to that's on markets. members Is I you digital reinvigorate would the Tell up basically how REDcard? the anything seems helpful. many

Catherine Smith

Yes.

Greg, and Brian So then maybe on pile and too. start can I’ll John

stable. as said, about penetration you is REDcard, For

As said the is that most a engaged in our program. great guest, know They're past, that, our guests. loyal we highest, we most

that. So we actually to want continue growth to

exclusive. You're more seeing us

the last guest. we a quarter fourth year You'll this and with make see year really special our those like relationship did with it

know to also speak However, we that, everyone. doesn't that

in know, of a program And so have relationship with a testing it to you we've Red, a we call program Dallas, part as the Target which Target. is everyone loyalty non-tender-based been be really

to positive. indications RED So we're and We'll test that's are that very, very program. engagement good sign-up with going. year. continue next excited all of We're this where really about the But seeing

Brian Cornell

update Shipt? on John, do up you to want wrap this with

John Mulligan

of we very short Shipt, We're year. markets really – this throughout proud over of really has excited amount in a remain how the now in that team Yes. scaled XXX time. With

continue to very strong see We response from consumers.

triple-digit me if open look see most year I at GMV. to at mature have that markets in still excited, you been markets, growth think over metric in gets for look a sales, I the continue

engage a where even So more we've time. in guests more to markets continue there and been long

digital would Shipt. add We're GMV The our get only – thing not your reporting relative because on modest reporting the I is GMCs is other growth question GMV. of relatively quite go course, which, to impact the modest that Greg, to through revenue, to we sales are is

that modest, relatively is now impact the Shipt begin scale on and Shipt testing next there excited to the So target.com the very deliveries opportunity is year. we're but opportunity with to

Gregory Melich

love thinking using the over If Amazon strength traffic Have How given I traditional move that the direction monetize traffic. all in that advertising in just data outside I certainly about digital to the avenues? given maybe and to are advertising, revenue. could, guys particular on guys you about been ways of you what that the follow-up billion with thinking $X that, to in traffic just trying

Brian Cornell

for and thinking wrap spring It's join today something and day, to all and our you the in invite Financial each to every it us we're Day. about leads of probably Community updated us

guest. loyalty to of So it's something that we’re our very End with focused Q&A on, build continue

Brian Cornell

us wrap invite to every and our call you. again I third join to so spring, today, operator, think, up in for But going the we're one quarter thank

Target (TGT) 20 Nov 182018 Q3 Earnings call transcript