The operator opens the conference call and introduces the speakers, including the CEO, Chief Commercial Officer, and Chief Operating Officer/Chief Financial Officer. They will discuss the company's second quarter performance and outlook for the rest of the year. The call is being recorded and will be followed by a question-and-answer session. The speakers remind listeners that any forward-looking statements are subject to risks and uncertainties and refer to non-GAAP financial measures. Reconciliations of non-GAAP numbers to GAAP numbers can be found in the morning's press release.

The speaker, Brian Cornell, welcomes Rick Gomez to the call and discusses recent changes in the company's leadership team, including Michael taking on the role of Chief Operating Officer and the search for his replacement as CFO. He also welcomes new Chief Legal and Compliance Officer, Amy Tu, and thanks Don Liu for his service as he prepares for retirement.

The team's focus on developing enterprise leaders has led to strong financial performance in the second quarter, with comparable sales growing 2% and EPS increasing by 42%. The growth was driven by increased traffic and the success of guest-focused initiatives, with both store and digital channels seeing growth. The digital team's enhancements have led to high single-digit growth in digital comps and a significant contribution from same-day services. Additionally, all merchandise categories saw improved trends in the quarter.

In the second quarter, Target saw significant growth in apparel and beauty sales, as well as in their food and essential categories. This was driven by a focus on value and the success of their loyalty program, Target Circle, which has over 100 million members. The program not only increases engagement with existing members, but also provides valuable consumer insights for their advertising business, Roundel. This has resulted in double-digit growth for Roundel and has positively impacted gross margin and other revenue for Target.

Roundel is expected to have high growth in the coming year, despite challenges faced by consumers such as inflation. The company remains focused on providing value for its customers through low prices, deals for Target Circle members, and convenience through services like Drive Up and Target Circle 360. The team is also committed to controlling what they can and maintaining a cautious outlook, while focusing on retail fundamentals and strong execution. This includes staying in stock and providing efficient and friendly service to customers.

Target is focused on building on the positive momentum in discretionary categories and improving their operating margin rate. They are also committed to disciplined capital deployment and investing in their team. Their goal is to deepen their relationship with guests and they have seen an increase in traffic, with nearly 1 billion trips made to Target in the first six months of 2024. The company is grateful for the trust and engagement shown by their guests and credits their team for their success in transitioning from "go time" to "grow time."

The Q2 results demonstrate the power of newness, seasonal relevance, and value in attracting consumers who make trade-offs. The team is focused on building momentum and is driven to win together. The new CEO, Rick Gomez, will prioritize affordability, newness, seasonal relevance, and ease, while also simplifying processes, being creative, and being consumer-obsessed. The consumer outlook remains unchanged, with American families facing many challenges.

In the second quarter, Target saw a 2% increase in sales driven by an increase in traffic. This growth was seen in all core categories and was supported by the success of their Target Circle 360 service, which offers a monthly subscription for same-day delivery. The company also saw strength in both discretionary and frequency categories, with apparel being a standout performer due to a combination of newness and value. The All in Motion brand in particular saw strong sales, as well as the women's apparel brand Wild Fable.

Target's recent relaunch of their intimate and sleepwear brand, Auden, has been well-received by customers, with high-quality and affordable items like $15 bras and $20 pajama sets. This reflects the overall improvement in their apparel category, which they plan to continue building on. While Home and Hardline categories are still lagging behind, there has been a significant improvement in trend over the past year. The kitchen category has stood out, thanks to the launch of their Figmint brand, and Hardline has seen growth in categories like affordable outdoor products and new toys. Beauty has also been performing well, with high single-digit comp growth driven by new offerings, celebrity brands, and seasonal relevance.

Target has seen a rise in sales of sun care products, including both familiar and newer brands. Minis and exclusive items have also been popular. In the food category, seasonal moments and rethinking assortment strategies have led to growth, particularly in the candy aisle with the addition of better-for-you options. In Essentials, health and baby care products have been strong sellers. Target's own brands have outpaced the total enterprise. Target Circle members have taken advantage of promotions, particularly during Target Circle Week.

Target added over 2 million new Target Circle members and hundreds of thousands of Target Circle cardholders and 360 members in the second quarter, which provided valuable insights for personalized offers and fueled their Roundel media network. They are now focused on back-to-school and college seasons, offering affordable school supplies and a 20% discount for college-bound guests and teachers. They will also be introducing new fall items, including a new women's legging destination from All in Motion.

Target is focusing on fall fashion for women, offering on-trend neutrals and affordable core items. They are also introducing a new line of mix and match apparel in college team colors for game day. The fall food assortment will feature over 150 new owned brand items and 500 new national brand items, including popular fall flavors like pumpkin and apple, as well as unique options like Pecan Pie Ice Cream and turkey stuffing flavored chips. Target is also bringing back their popular 8-foot Halloween pumpkin ghoul, Lewis, and introducing new Halloween-themed products with sassy personalities. They are also offering a wide selection of Halloween costumes, including their own Target branded options. With 75% of the Halloween assortment being new this year, Target is confident that they will be the go-to destination for Halloween shopping.

The paragraph discusses upcoming releases and partnerships for Target, including the highly anticipated film Wicked and new hair care products. The company is also grateful for their team's dedication and handling of changes. The CFO, Michael Fiddelke, is taking on the COO role in the future.

The COO is confident in the talented leaders and teams at Target who prioritize the guest experience. The operations team is focused on improving retail fundamentals, particularly in staying in stock and being reliable for guests. Out-of-stock measures have improved significantly, with total out-of-stocks down 500 basis points and out-of-stocks on top items down 50%. The recent severe storm in Texas caused damage to a perishable food distribution facility, but overall inventory investment is slightly lower than last year. Target is focused on maintaining the right amount of inventory in categories with strong demand.

Target has been able to improve their inventory turns and sales per store in the past five years. They have also focused on improving the store shopping experience, particularly at checkout. With changes to streamline self-checkout and increased staffing at full-service lanes, checkout times have decreased and guest engagement has increased. This has led to improved Net Promoter Scores. Target has also invested in technology to make it easier for team members to serve guests, with the integration of GenAI into handheld devices. This has been well-received by team members, who have used it over 50,000 times with an average chat time of less than one minute. Target will continue to improve this tool based on team feedback.

The new tool implemented in stores is expected to be helpful in training new team members for the upcoming holiday season. Despite the importance of efficient processes, the team also needs to be adaptable in the face of unforeseen events, such as weather-related challenges. The team successfully responded to a storm in Texas and a hurricane in Southern Texas, providing aid and support to affected communities. They also took care of each other during these difficult times.

Target maintains a strong infrastructure and a core team at headquarters to support disaster relief efforts. They reserve and preposition critical supplies throughout their distribution network and monitor weather conditions to quickly respond to disasters. They have already made proactive donations of $2.5 million this year and have supported various organizations in the aftermath of Hurricane Beryl. Target's sustainability strategy focuses on addressing community needs and making a positive impact through philanthropy, volunteerism, and utilizing business assets. The team is thanked for their hard work in helping communities thrive.

The speaker expresses pride and gratitude for the company's employees and provides an update on the success of their sortation center strategy. This strategy has resulted in faster delivery speeds, lower costs, and increased efficiency. The company is excited to continue expanding this capability and has recently opened its 11th sort center in the Detroit market. Additionally, existing sort centers are ramping up their capacity and finding new ways to integrate into the network. The speaker then transitions to discussing the company's second quarter financial results, highlighting a 2% increase in comp sales driven by an increase in traffic.

In the second quarter, there was an increase in traffic and a decline in average ticket. This was partially offset by strong sales during seasonal moments and growth in non-mature stores and other revenue. Gross margin rate also improved, driven by merchandising strategies and lower inventory shrink. The company expects to continue seeing benefits from lower shrink costs in the third quarter, but at a lower magnitude than in the second quarter. In the fourth quarter, shrink costs are expected to be flat compared to the previous year.

The company has made progress in reducing shrink rates and increasing profitability, but will continue to work towards more sustainable levels. SG&A expenses have increased due to various factors, but operating margins have improved. Inventory levels are stable compared to 2019. The company's priorities for capital deployment include investing in the business, supporting the dividend, and engaging in share repurchases.

The company has allocated a significant amount of money for capital expenditures and has returned money to shareholders through dividends and share repurchases. Their after-tax return on invested capital has also improved. The company remains cautious about their future performance due to the uncertain economic climate, but is prepared to respond if their business performs better than expected.

The company is predicting third quarter comparable sales growth of 0-2% and GAAP and adjusted EPS of $2.10 to $2.40. They are also expecting to be in the lower half of their full year comp guidance range. However, due to strong financial performance in the first half of the year, they have raised their full year GAAP and adjusted EPS range. The company's financial aspirations for the next 10 years are based on healthy top line growth and reaching appropriate profitability. In the second quarter, the company exceeded their baseline expectations for top line growth and saw even faster growth in guest traffic. They also expanded their Q2 operating margin rate. However, the company recognizes that there is still a lot of work ahead. This quarter was the first time in a while that their EPS grew faster than the top line, with total revenue growth of 38% over a five-year period and EPS growth of over 41%. Their guidance for the remainder of the year suggests further expansion of both metrics.

Target expects to continue making progress in the future through their growth initiatives, efficiency work, and reducing inventory shrink. They have a clear vision and a dedicated team to achieve their goals. The company's unique selling point is their combination of great prices, convenience, promotions, and shopping experience. They have a large number of accessible stores and a variety of digital fulfillment options. Target offers a wide range of products and is known for curating their merchandise assortment. The company aims to strike a balance between all aspects of their go-to-market strategy and had a successful second quarter. They are determined to continue delivering for their customers in the third quarter and beyond.

The team at Target is optimistic about the future and is focused on moving the company forward. They are confident in their ability to meet their high-end guidance for quarter two and maintain their guidance for quarter three, but they are being cautious about the same-store sales guidance for the full year due to the uncertain consumer behavior. Overall, they are still expecting growth and are playing offense while remaining measured in their outlook.

The speaker discusses the company's approach to guidance for the third quarter and their continued efforts to play offense and drive traffic and value for customers. They also mention the strong delivery and operating margin performance during the quarter, and their goal to sustain and improve margins over time. The team is credited for their work in achieving a 2% comp growth and finding efficiency within the business.

The company is pleased with their current earnings results and attributes it to their team's hard work in improving efficiency and reducing shrink. They also mention a more promotional environment this year but are still ahead of their expected progress. The team has been focused on retail fundamentals and improving execution in both physical and digital operations. The company plans to continue this momentum in the third and fourth quarters. In response to a question, they mention that the strength in merchandise margin strategies drove the second quarter results and they are confident in their sustainability going forward.

The company has seen improvements in their margin line and has worked to find efficiencies within the business. They have also seen progress in reducing the cost of shipping. When forecasting the business, they consider factors such as seasonal revenues, trends, and comparisons to 2019. Comps for June and July have been relatively steady.

During a recent conference call, Target CEO Brian Cornell discussed the company's preparations for back-to-school and Halloween seasons. He mentioned being well-prepared for these seasonal moments and providing a great physical and digital shopping experience. When asked about price investments, Cornell expressed satisfaction with the consumer's response and mentioned other ways Target provides value, such as personalized offers for Target Circle members and the 5% discount for using a Target Circle card. He also mentioned the importance of strengthening the relationship with guests in the current economic environment. The next question was about Target Circle penetration.

Target's Circle 360 same-day delivery and Drive Up services have seen growth in the low teens, leading to an increase in overall spending and in-store shopping. The relaunch of the Circle program has the potential to bring investment back into the Circle card business. This program offers personalized offers, an extra 5% savings for card members, and access to the best of Target through Circle 360.

The integration of various programs is expected to help reinvigorate the Circle card business over the next few quarters and years. During the July Circle Week, 2 million new members joined the brand, and Drive Up and Target Circle 360 have been successful services for the company. Drive Up saw a 14% growth in the second quarter and is a $2 billion business. The company believes that Drive Up users also spend time in Target stores, which is a positive combination. The discretionary category is still negative, but there are green shoots in other areas, such as strength in Apparel and other subsets. The company expects the discretionary category to inflect positively in the future.

The company believes that as purchase cycles for categories like Home, led by Kitchen, become due for replacement, there will be strength in those categories. Rick Gomez then discusses the trends in discretionary categories, noting that when Target offers on-trend, stylish products at great prices, consumers respond positively. For example, the All in Motion performance brand and Blake Lively's hair care line have been successful. Additionally, in other categories like Home, Target is seeing growth in inexpensive items like candles and throw pillows, as consumers want to freshen up their homes on a budget. CEO Brian Cornell also mentions a successful collaboration with Authentic Brands leveraging the Prince brand.

Target has successfully brought the Prince brand into the pickleball category, creating a destination for all things pickleball. This fits well with Target's family-oriented approach and has been positively received by guests. The company plans to continue bringing great design, on-trend items, and great value to spark demand in this and other categories. In terms of Food & Beverage, Target sees significant growth potential with its combination of national brand partnerships and strong owned brands. They believe they are still in the early stages of building out this business.

Rick Gomez discusses the potential for growth in the Food & Beverage business, citing affordability, new products, and ease and convenience as key factors. He mentions the success of price reductions and personalized promotions, as well as upcoming new flavors for the fall season. He also highlights the growth of Drive Up and same-day delivery as convenient options for consumers. Brian Cornell concludes the conference call.

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