The operator welcomes the participants to the Target Corporation First Quarter Earnings Release Conference Call and explains the format of the call. John Hulbert, Vice President of Investor Relations, introduces the speakers and mentions the availability of a webcast. He also reminds listeners of the risks and uncertainties associated with forward-looking statements and refers to non-GAAP financial measures.

During the first quarter, Brian Cornell discussed Target's long-term vision for growth and the various investments being made to support it. These investments include opening new stores, modernizing the supply chain, utilizing technology, relaunching the loyalty program, improving the digital experience, and investing in the team. Cornell also highlighted the value of Roundel, Target's advertising business, and the importance of their unique assortment and partnerships.

Target has provided financial guidance for 2024 and is on track to deliver on it, with first quarter sales and earnings meeting expectations. While the top line performance is not yet satisfactory, there has been a sustained improvement in business drivers. The US consumer remains resilient despite challenges such as rising prices and a shift in spending patterns towards services and entertainment. This has resulted in soft trends in discretionary categories.

The company has seen a decrease in inflation rates and an increase in discretionary spending, giving them hope for a better balance in spending. They are focused on operational excellence, delivering newness and unbeatable value to customers. They have recently announced price cuts on frequently shopped items and are planning more in the future. They also offer value through their loyalty program, Target Circle.

Target Circle is one of the largest loyalty programs in the US with over 100 million members. The program has been redesigned to offer more value and convenience, including integrating credit and debit card programs and same-day delivery options. The program saw a significant increase in new members in the first quarter and Target plans to continue investing in it. The team worked collaboratively across various departments to make the relaunch a success. Digital sales have also improved, driven by the popularity of same-day services such as Drive Up. Drive Up sales alone were over 30 times larger in the first quarter of 2021 compared to the same period in 2019.

The speaker takes a moment to acknowledge the efforts of their operations teams in improving the guest experience through retail fundamentals. They also highlight the success of their stores and sales model in fulfilling nearly all of their sales and generating significant revenue and profit growth compared to pre-pandemic levels. Looking ahead, the team is focused on returning to top line growth and is confident in their resilience and passion for success in the marketplace.

The success of Target is attributed to its team, and the company remains confident in its ability to grow. The company's view on the US consumer economy remains consistent, with consumers showing resilience despite challenges such as high prices and economic uncertainty. However, consumer confidence has dipped and many families are struggling with budgeting and savings. Target remains cautious in its growth outlook, expecting discretionary trends to normalize over time.

In the first quarter, comparable sales at the company were down 3.7%, mainly due to weak performance in Home and Hardlines categories and lower sales in frequency categories. However, beauty was a standout category with low single-digit growth, driven by strong performance in Ulta Beauty at Target and personal care and skin care products. Apparel also showed improvement, with a nearly four percentage point increase in comparable sales compared to the previous quarter. The partnership with Diane von Furstenberg was highly successful, attracting millions of unique visitors and increasing basket size by 15%. Seasonal moments, particularly Valentine's Day and Easter, performed well in frequency categories. While Home and Hardlines sales remained soft, there were some bright spots, such as cost reductions in select categories leading to an increase in unit velocity.

Target experienced strong growth in the entertainment and sporting goods categories, with notable success in exclusive partnerships with Taylor Swift and Prince. Digital sales also saw significant growth, driven by same-day services and improvements in the apparel business. The relaunch of Target Circle, the loyalty program, has also been well-received, with over 1 million new members and positive feedback from guests. The marketing campaign featuring Kristen Wiig has also boosted social media mentions of Target Circle.

Target has been successful in their advertising efforts, as well as their implementation of Target Circle deals and pricing transparency. The recent Target Circle Week in April drove high traffic and redemption rates from Target Circle members. The company is also seeing benefits from their digital platform remodel, including the use of AI and personalization to improve product recommendations and search results. A pilot test with a major vendor showed significant increases in conversion rates and sales lift. Target is also focused on growing relevance in their online assortment.

Target is expecting significant growth from its digital marketplace, Target Plus, which has seen a doubling in partners and products in the past year. The company sees digital not just as a sales channel, but also as a way to connect with customers and provide a seamless shopping experience. In addition to traditional channels, Target is also exploring new ways to expand its business, such as a recent collaboration with Canadian retailer Hudson's Bay to bring its Cat & Jack kids apparel brand to Canadian families. The launch has been successful, with an increase in basket size and top-selling items. Target plans to expand the collection to drive more traffic and sales.

Target is pleased with the success of their recent brand launch and is looking for more opportunities to expand. They are also focusing on their expectations for the second quarter, which is a popular time for travel and outdoor activities. Target has a wide range of products and brands to meet the needs of their customers, including their own brand Embark for outdoor enthusiasts. They have also reduced prices on over 1500 items and plan to add more to this list, making value a top priority for consumers. Customers can also save more through personalized promotions and using a Target Circle card.

Target's owned brand offerings provide great value and quality for guests, including new food options for summer and a focus on back-to-school and back-to-college categories. The company's goal is to make shopping easy and convenient for families, and the teams are thanked for their hard work in managing the current environment. Target takes a long-term approach to investments that will delight consumers and guests in the future.

The company's long-term perspective has led to strong financial performance and will continue to guide their investments in guest experience. The team has successfully maintained appropriate inventory levels and has seen significant improvements in in-stocks in the first quarter, with a focus on top-selling items, high volume stores, small format stores, and seasonal programs.

The team has improved in-stock measures in Q1 and has seen improvements in the upstream supply chain. Collaboration with vendor partners has also improved, resulting in increased reliability for inbound shipments. The team remains focused on maintaining retail fundamentals and operational excellence, including limiting the number of items at self-checkout to improve the guest experience. This change has led to increased guest satisfaction scores for wait times and interactions with the team at checkout.

In the first quarter, average scores for guest satisfaction and net promoter score for Drive Up returns increased compared to a year ago. The team also did a great job preparing for and supporting the relaunch of Target Circle and signing up over a million new members. Total sales declined 3.2%, driven by a 3.7% decline in comparable sales and cautious consumer spending. Total revenue was down 3.1%, with other revenue increasing by 3.9%.

In the first quarter, Target saw a decline in credit card profit sharing, but this was offset by growth in Roundel Ad business and revenue from Target Plus. The gross margin rate improved by 140 basis points, with one percentage point coming from merchandising and 20 basis points from inventory shrink. Target has been taking steps to reduce theft in their stores and expects shrink rates to reach a plateau this year. This improvement will have a positive impact on gross margin rates, but it is only a small step in offsetting previous headwinds. The SG&A line saw a rate increase of 130 basis points due to a decline in sales and higher costs, while the D&A line saw a rate increase of 20 basis points due to lower sales and completed capital projects.

The company is pleased with the slight increase in operating margin rate despite a decline in sales. This was due to enterprise efficiency efforts and investments in the team. The company has also made progress in reducing complexity and improving inventory position. The company's priority is to invest in projects that meet their strategic and financial criteria.

The company has three main priorities: supporting dividends, investing in capital expenditures, and potentially resuming share repurchases. They plan to increase their quarterly dividend and aim for a 40% payout ratio. They did not repurchase any shares in the first quarter but may do so later in the year. Their after tax return on invested capital for the past 12 months was 15.4%, and they expect it to continue growing. For the second quarter, they anticipate a 0% to 2% increase in comparable sales.

Target's growth rate for Q2 is lower than expected, but the company is maintaining a cautious approach to their near-term outlook. The EPS range for Q2 represents a 20% growth rate over last year. For the full year, Target is maintaining their guidance for a comparable sales increase and EPS. The team is praised for their dedication and the company is focused on both the present and future. The CEO recaps the company's view of the business, environment, and their progress in recent quarters.

The positive indicators for the company include improving top line trends, digital growth, strong performance in beauty and apparel categories, and a focus on value and convenience for customers. The company is also investing in long-term growth through new stores, digital shopping, and its own brands. The team is also focused on employee pay, benefits, and development. Efficiency efforts have created more capacity for investments and have led to stronger profitability. The company is positioned for continued progress and profitable growth in the future.

The speaker, Brian Cornell, is discussing the company's performance in the first quarter of the year and their plans for 2024. They are not satisfied with their results in Q1 but are seeing positive signs such as improved traffic and digital growth, as well as strong performance in services and categories like beauty and apparel. The relaunch of Target Circle and Roundel are expected to drive growth for the company. They are aiming for a balanced approach to performance in 2024, focusing on both top line growth and profitability.

The company is focused on balancing operational efficiencies with a focus on driving top line growth. They are managing inventory effectively and improving in-stocks, which is important for their performance for the rest of the year. The SG&A related to Target Circle may fluctuate quarter-over-quarter, but the team is managing costs well and this is factored into their guidance for the year. The company invested in the relaunch of Target Circle in Q1, but their expectations for the top and bottom line for the year remain unchanged.

Target is committed to investing in price to deliver value and affordability to their guests. This has been a priority for a long time and is even more important now due to inflation in certain categories. The company plans to pass savings along to customers to drive traffic and unit growth, and their partners are aware of this strategy.

Target's CEO and CFO discuss the company's partnership with suppliers and their commitment to providing value for customers through innovative products. They also mention the progress they have made in reducing shrink and their ongoing focus on retail fundamentals, including affordability. They mention a recent price investment and the launch of a new brand called Dealworthy as examples of this focus.

Target is leveraging Target Circle to make shopping easier and more affordable for guests. They are focusing on value, especially during the summer season, and want to communicate that Target is a great place to shop. The outside perception is that sales are healthy during promotional events, but softer outside of those events. Target expects to see positive comps in the second quarter due to investments in assortment, value, and guest experience. The question was also asked about the trends during the quarter and if weather had any impact.

Brian Cornell, CEO of Target, addressed a question about any notable trends in the company's first quarter. He stated that the quarter played out as expected and provided a good foundation for growth in the second quarter. He also mentioned the team's work on retail fundamentals, improved in-stock position, and ability to show up stronger in the second quarter. Michael Fiddelke, Target's CFO, added that the company is well positioned to handle volatile weather. On the topic of merchandising innovation, Christina Hennington, Target's Chief Merchandising Officer, stated that consumers are responding well to newness and innovation at an incredible value, and the company plans to continue accelerating the percent of newness in the future.

In the last quarter, the company saw success in their apparel improvements, particularly in their ready-to-wear, performance, and young contemporary businesses. They also have a great partnership with Diane von Furstenberg. The company is excited about the opportunities for summer and is focusing on newness and innovation from their partners. They also have a strong private label business and have recently launched two new brands. They are seeing momentum in this segment as they continue to invest in it.

The speaker discusses Target's owned brands and their focus on quality, durability, and value. They mention the success of Dealworthy and up&up, and how they have made surgical investments in certain categories to improve their offerings. They also mention their inventory management and how it helps improve margins.

Brian Cornell, CEO of the company, answers a question from Corey Tarlowe about inventory levels and efficiency. He agrees that when inventories are in-line, the company runs more efficiently. They feel good about their current inventory position and aim for lower inventories and higher in-stocks. Another question from Mike Baker asks about price investments and how much was planned for the full year. Cornell and Michael Fiddelke confirm that these investments were part of their plans and outlook for the year, and their current outlook for the balance of the year is unchanged. They are always managing different factors in the business, but knew that investment in value would be important for success this year.

Kate McShane from Goldman Sachs asks about the margin contribution from Roundel, Target Plus, and Cat & Jack at Hudson Bay, as well as any increase in Shipt subscription conversions due to the launch of Target 360. Brian Cornell defers to Michael Fiddelke and Christina Hennington to answer, and they highlight the strong growth in Roundel and Target Plus, which contribute to both top and bottom line growth. They also mention the expansion in margin over time and the value created with partners through Roundel. Brian Cornell takes the opportunity to recognize the teams responsible for these successes during the quarter.

The Roundel team has been consistently delivering good results for Target, especially with the relaunch of Target Circle. The Target team is also thanked for their efforts and commitment to achieving growth in the second quarter. The speaker appreciates everyone joining the call and looks forward to the next update at the end of the second quarter.

This summary was generated with AI and may contain some inaccuracies.