Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to they target Corporation first quarter earnings release Conference call.
During the presentation.
All participants will be in listen only mode. Afterwards, we will invite you to participate in a question and answer session.
<unk> prepared remarks, well open the Q, but if you wouldn't <unk> session.
Hi, if you have a question you will need to cross star one on your telephone.
A reminder, this conference is being recorded Wednesday may Twentyth 2020.
We'd now like turn the conference.
Over to Mr., John Holmes, Vice President Investor Relations. Please go ahead sorry.
Good morning, everyone and thank you for joining us on our first quarter 2020 earnings conference call.
On the line with me today, our Brian Cornell Chairman and Chief Executive Officer, John Mulligan, Chief operating Officer, and Michael Fidelity, Chief Financial Officer.
In a few moments, Brian John and Michael will provide their perspective on the first quarter and our continued focus on our gas and our team as we navigate through the current environment.
And your remarks, well open the phone lines for question and answer session.
Good morning, we're joined on this conference call by investors and others, who are listening to our comments via webcast.
During the call Michael and I will be available to answer your follow up questions.
And finally as a reminder, any forward looking statements that we make this morning are subject to risks and uncertainties. The most important of which are described in our most recently filed 10-K and U.K. we furnished this morning.
So when these remarks, we refer to non-GAAP financial measures, including adjusted earnings per share.
Reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this mornings press release, which is posted on our Investor Relations website.
With that I'll turn it over to Brian for his thoughts on the first quarter and the short term and longer term implications for our business Brian.
Thanks, John and good morning, everyone.
We appreciate that you've joined us on this morning's call and we hope it you your family and friends are safe and healthy.
It goes without saying.
This quarter was unlike anything we've seen in our company's long history.
And while we didnt, establishing another all time record for this quarter's deep, yes, I have never been more proud of our performance.
Over the last few years, we build the strategy and operating model. That's designed to generate strong performance in a wide variety of environments and the first quarter demonstrated the strength that model.
Unprecedented volatility within the quarter presented the most extreme test of our business and operations, but I could have imagined and in an environment, we drove industry, leading growth with a total comp sales increase of 10.8% and digital comp wrote a more than 140%.
As I reflect on all that transpired since the quarter began in February.
There were two key factors in our success.
Our strategy a position stores as with human hubs and are unbelievable team.
When guests began flocking to our stores to stock up our team was ready.
And when digital demand exploded as guest began to children place. Our teams are the tools processes and keep ability to flex to meet that shift in demand.
Got it goes well beyond processes and tools.
Because our team's efforts on behalf, where guests and communities I've been monumental.
The pride our team is shown and their willingness and ability to deliver essential products and services to our guest is humbling and inspiring.
Our guests are putting their trust and target.
The team is delivering and they deserve our enduring gratitude.
And our financial Committee meeting at the beginning of March we highlighted multiple dimensions of flexibility built into our operating model.
We offer a balanced merchandising assortment that is unique in retail, allowing target the server guess rapidly evolving demands for wants and needs.
Really unique digital strategy.
It's not a curated assortment of the categories in items or guess expect from us.
We deliver this digital assortment through a comprehensive suite of human options, including our rapidly growing same based services.
Short pickup drive up and shipped.
In support of our digital strategy, we place or stores at the center of with them.
Which gives us both speed and efficiency.
This structure also allows our teams to pivot seamlessly when I guess channel preferences change.
We have teams at headquarters stores throughout the supply chain.
Relentlessly focused on or guess.
Placed a premium on a jody and adaptability.
And with a strong balance sheet and a business model that generates robust cash flow.
We are the financial flexibility to handle difficult times like this.
We used to fund investments in the safety of our guests and her team.
Well certainly a critical role it communities as a trusted essential retailer.
Given our unique assortment and comprehensive suite of film and options.
We could see first hand, as our guest mindset rapidly a ball during the first quarter.
Already feels like years ago.
During the first three weeks of February we experienced a relatively normal mix of sales across merchandising assortment in a typical mix of sales between our stores in digital channels.
Towards the end of February we saw an acceleration in traffic and sales, particularly in our stores.
However, we continue to see a lot of cross shopping in a more discretionary categories. When it gets made trips to stock up on food and essential.
Around the middle of March the mix of gas purchases became much more narrowly focused on food and beverages and household essentials.
And we began seeing much softer trends discretionary categories, most notably in apparel.
In addition, as children placed rules were adopted across the country.
Yes began to pull back on store trips and we saw a dramatic surge in digital traffic in sales.
We also get seeing higher demand for products orientated around staying at home.
Moving home office products video games puzzles, and board games long with the housewares and kitchenware and her home assortment.
And finally around the middle of April.
We experienced a rapid increase in traffic and sales in our stores and abroad surgeon sales in more discretionary categories, including apparel, which persisted throughout the ended the month.
A surgeon stores occurred while our digital growth due to you that unprecedented rates of 2% to 300% above last year.
As a result over the last couple of weeks of April we saw some of the strongest comparable sales growth we've experienced in our history.
When you put all these chapters together and look at the first quarter in total.
Comparable sales grew nearly 11% with a wide range of performance across categories as gets changed her shopping pattern in response to the crisis.
Among our five core merchandising categories, we saw the strongest performance and Hardlines, which grew comparable sales by well over 20%.
Growth was particularly strong in electronics, where comps grew more than 45%, reflecting high demand for video games and home office items.
Essentially beauty, so high teen comp growth, what comps in food and beverage grew by more than 20% as guests trust the target for both or stock of trips and their everyday needs.
In home, we saw high single digit comp growth led by kitchen.
It's not comp growth in excess of 25% in.
And in apparel first quarter comparable sales declined about 20%.
Reflecting soft filled in late March in early April followed by a resumption of growth in the last two weeks of April.
As we evaluate these category trends Bolton overall, U.S. retail and on a category by category basis, we foresee unprecedented share gains across every measure.
Clearly important bar business share statistic reflect the fact that non essential retailers across the country have remained largely closed.
And even though we compete with them, we sincerely look forward to the day, what our retail colleagues can reopen after all a healthy retail sector is critical to the overall health of the U.S. economy.
And of course employs more competitors often shop at target too.
More fundamentally we believe recent share numbers reflect the trust that are gets it plays in our stores, our digital capabilities, our team and our brand.
In particular as our teams have risen to meet our guest needs and deliberate friendly libel service during this unprecedented time.
We believe that are against level of trust has only become deeper throughout this crisis.
From a channel perspective first quarter store sales grew about 1%.
While digital comp sales increased by 141%.
Of course, these quarterly numbers mask, how quickly trends changed within the quarter.
Specifically, we began the quarter with a relatively normal February which we saw overall comp growth of 3.8% and digital comp growth of 33%.
And then it in April which saw total company comp growth of more than 60%.
In a job dropping 282% increase in digital comp sales.
I want to pause and comment on that April digital performance for a moment.
Because I suspect that many of you might have wondered whether our operation could sustain such a strong increase for an entire month.
After all the put this volume into perspective on an average day in April our operations were going many more items in orders and last year cyber Monday.
A day for which we had planned months ahead of time.
In contrast.
Unprecedent surged volume would completely unexpected at the beginning of the quarter.
And it ramped up from normal trends in a matter of weeks.
And by design it was our stores that enable the sturgeon digital volume, but the only more than 80% of our digital sales in April.
Even more impressive within our April digital sales growth of just over $1.1 billion compared with last year store fulfillment accounted for more than $950 million that growth.
As both RCB services and shipments to guess homes saw significant increases.
How is this accomplished.
John will provide more details in a few minutes, but I'd reiterate that it comes down to two factors.
Our strategy of using our stores is hubs and the ability or a team to quickly pivot to meet shifting demand.
And while we incurred extra cost to comedy this incredible surgeon digital fulfillment, we expect to gain a long term benefit in terms of guest loyalty.
During the first quarter word and 5 million gets shop on target dotcom for the first time with more than 2 million of those guests, making their first drive up trip.
And.
Because of the amazing flexibility our team.
We saw consistently strong levels and satisfaction with the target dotcom shopping experience even in the face of crushing increase in demand.
So now I'm going to turn to our focus going forward, which isn't going to change we continue to focus on serving our guests while taking steps to provide for their safety.
And well continue to focus on our teams investing and their safety and they're all being.
Oh, working remove obstacles and allow them to serve gets during this critical time.
Throughout this evolving crisis, we have continually adapted our operations and processes to enhance guest in team member safety.
Looking ahead, we will continue to quickly adapt to changes in the environment and emerging guidance from the CDC and other authorities.
Already during the first quarter, we took numerous steps to protect our guest shoppers and our team members, including enhanced clean standards.
A binding personal protective equipment to our team members and ship shoppers.
Installing plexiglass dividers at checkout, and implementing metering protocols inner stores where appropriate.
For our team we rolled out a wellness checklists for them to report before each shift and provide a free thermometers the team members who need to them.
We also invested hundreds of millions of dollars, an extra pay and benefits for our team.
Adding $2 to their hourly wage investing in enhanced backup day care options across the country and offering enhanced paid leave for team members with Barnabas health conditions.
Consistent with our longstanding commitment the communities, where we live and work we donated personal protective equipment over 50 health care organizations and shared tools and expertise with government partners and other businesses to help protect healthcare workers and assist other businesses in reopening and operating safely.
In addition, we recently announced our foundation biggest single donation in company history.
$10 million.
To assist team members communities national organizations and the global response to this pandemic.
Beyond our corporate commitment.
South as a team members are volunteering in their local communities, including a group of three D printing enthusiasm on our technology team, we're using their personal devices to produce and donate plastic officials to local hospitals.
And most recently.
This week, we announced the extension of higher pay and enhance benefits for our team through the end of June.
We initially announced these temporary changes the end of April and last month, we announced we look silly them through Maine and today, even at the country is starting to talk about how things will look when we get back to normal our teams continue to face unprecedented challenges as they serve families in their communities.
As a result, we're proud to support our amazing team members as they navigate through these challenging times.
In terms or financial expectations, Mike will offer his perspective in a few minutes.
We're maintaining our recent suspension of financial guidance.
From today's perspective, the one thing that seems most certain is continued volatility.
And whenever possible, we're building flexibility into our plans and commitments.
But let me be clear the expectation of continued volatility in the external environment doesn't translate to a lack of confidence about our future.
If there's one thing our team and operations that demonstrated its the ability to adapt to rapid change and continuing delivering outstanding service for our guests.
And as I said before it's at times like these that we can all see the benefit of a strong balance sheet.
And fundamentally sound business model.
The financial strength gives us the flexibility to focus on what matters most.
Our guest and our team.
Giving us confidence that will emerge from this crisis as a stronger more relevant retailer with an even higher level look affinity and trust among our guests.
So as I turn the call over to John.
Well once again offer my thanks to the entire target team from headquarters for operations and offices around the world.
I've never been part of a stronger team and I share your pride in the essential role that target is playing in the lives of our guess thank you for your inspiring efforts everyday.
John.
Yes, Brian.
On these calls over the last few years I've described our long term journey and operations to completely transform our supply chain and fulfillment infrastructure moving from our prior linear model based exclusively on store shopping two unique modern structure designed to support a broad array of fulfillment choices.
It was just in our stores is the hub for guest fulfillment, whether a guest trip is based on traditional shopping use of one of our same be services or delivering a package to their front door to.
To invest in technology data and analytics to increase our inventory accuracy and better forecast demand throughout the network leading to improved in stocks higher guest satisfaction and ultimately stronger sales.
Transform how we selected build store size moving from a rigid large format prototype model to a model in which we focus first on the neighborhood, we want to serve design a store to fit within the available space and then create a merchandise assortment to fit that particular neighborhood.
And finally to transform our store team moving from a model based on general athletes to one in which different parts of the team have accountability for individual businesses supported by tools and processes that allow them to make decisions in real time and focus on serving our guests in new ways.
One goal of all these changes was to make our operations and our team far more nimble and agile in support of our guests and while the journey is far from over this quarter demonstrate the benefits of everything we have already accomplished.
As Brian already described over the course of the first quarter, our team had to pivot dramatically and rapidly in response to multiple changes in shopping behavior.
Comps and essential and food and beverage moving from single digits in February to peaks above 50% March before settling down is the teams in April.
Apparel trends moving just as rapidly in the other direction from positive single digits at the beginning of the quarter to trough declines of more than 50% beginning in late March before resuming growth in last half of April.
With this volatility in category sales managing our inventory has also present any significant challenge.
In apparel given the recent dramatic slowdown in sales teams have been working closely with vendors to make appropriate changes based on our current inventory and future purchases.
Across the remainder of our core merchandising categories, we've seen a dramatic increase in the pace of sales, causing out of stocks to rise well above where we'd like them to be.
And need based categories like food and beverage in essentially where comps of accelerated into the 20% range. We've been on allocation from multiple vendors as they work to ramp up production to cover the higher level of demand.
Among some categories like paper in stocks have been recovering in recent weeks that across many portions of both essential and food and beverage we continue to sell out quickly when we receive shipments of products from our vendors.
In other categories like home and electronics, we have been increasing order quantities to match the higher piece of sales. However, given that many of these categories are primarily imported we will likely see some persistent out of sox until we can receive replenishment inventory from these overseas producers.
John categories, the volatility and shopping channels has been just as extreme.
Store comps moving from positive numbers to double digit declines in late March in early April then back to growth toward the end of April.
Digital comps moving from around 30% in February two nearly 10 times that piece in April.
Do all of these extremes the team maintained a positive attitude and demonstrated their pride in the positive role that they're playing in our guests lives.
I'm humbled and inspired by what they've been able to deliver on behalf of our gas.
The ability of our team and our network to attain and sustain digital comps of nearly 300% for the entire month of April has been incredible to watch.
There are too many steps to share, but I'll pick through a few because I think there helpful. In understanding how remarkable it's been.
Multiple measures of unit volume, including ship from store target orders fulfilled by shipped and overall digital were higher in the first quarter of 2020, then in the first three quarters of 2019 combined.
Units provided to drive up in the first quarter were higher than in all of 2019.
Sales of ownership from stores or picked up in stores increased nearly 150% in the first quarter.
Target sales fulfilled by shipped were up more than 300% and sales to drive up were up more than 600% higher than a year ago.
April sales on drive up increased nearly 1000 per cent compared with a year ago.
These growth numbers reflect the fact that drive up continues to be our most popular service.
The number of guests who are trying then repeatedly using drive up continues to increase rapidly.
Specifically more than 5 million guess used our drive up service in the first quarter with 40% of these gas new to the service.
And amazingly. Despite this unexpected explosion in first quarter digital volume the team continues to execute with amazing speed.
Both the percent of order shipped from store on time and the percent of pickup and drive up orders picked on time was approximately 95% in the quarter and both measures were higher than the first quarter a year ago.
One thing we've observed about this crisis is that is causing an acceleration in consumer trial and adoption of digital shopping.
The ability of our operations to handle this unexpected acceleration has given us even stronger conviction that we have the right model and we have ample capacity to handle continue change in the future.
Specifically as part of our long range plans at the beginning of 2020, our first quarter digital volumes weren't anticipated for another three years.
But our operations accommodated that extra volume without any advanced planning.
Like Brian said it was an extreme test of our model and our team and both performed admirably in the face of the challenge.
Another area in which the crisis has accelerated existing trends relates to the amount of retail square footage in the U.S.
We have long understood that the U.S. market is overstored and we've all observe the rationalization of unproductive retail space in recent years.
But let me quickly say, we continue to strongly believed that the future of U.S. retail will be based on an omnichannel model in which quality retailers will serve their customers through both physical and digital capabilities.
That's why we've consistently pursued a strategy based on investments to enhance both physical and digital shopping.
And while we have temporarily slowed down our plans for remodels and new stores because of the crisis that doesn't mean, we have less enthusiasm for these projects.
Rather we slowed down our plans for two specific reasons first we wanted to remove obstacles and distractions facing our team.
So they could focus exclusively on day to day execution in the face of extreme volatility across multiple dimensions of our business.
And second we adjusted our plans in anticipation of construction process changes needed to accommodate social distancing and other measures, which we expect to slow down timelines in some cases.
In addition, we expect that more time will be required for inspections and permitting related to these projects given the incremental demands facing local governments in light of this crisis.
So while it is too soon to lay out longer term timelines for our remodel a new store programs. We look forward to resuming these projects when appropriate.
This will allow us to continue to transform our real estate footprint, both through modernization of existing space and the selective addition of productive new small format locations located in neighborhoods that couldn't be served when we only opened larger stores.
Our strategic initiative that we temporarily pause during the first quarter was integration afresh refrigerated and frozen items into our pickup in drive up capabilities.
While we are eager to add this capability and we know our guests want the option, we decided not to add the distraction of implementing this test during the period of peak volatility.
However, we recently resumed the test in the twin cities market.
It had already begun last year and we've just expanded the test into the Kansas City market.
Operational results have been positive so far.
Well, we will continue to govern the pace of the rollout based on the circumstances facing our team we're committed to rolling out this capability to as many stores as possible this year.
Another exciting strategic development was our recent acquisition of local route optimization technology from the live.
Following encouraging results of recent tests of this new capability, we elected to purchase the technology and hired members their team to assist with the integration into our existing systems and processes.
We are excited about this new technology, because it offers the opportunity to add capacity to our fulfillment network, while also reducing the cost of last mile delivery.
And given that last mile is the biggest cost driver within digital the opportunity to control those costs will play an important role in our operating margins overtime.
With the benefit of this new technology, we can begin testing. The addition of sort centers downstream of our stores within our fulfillment network.
These centers, which we expect to be smaller than our average store will be placed downstream in select markets in which we have a high density of packages being sent to guess homes.
By eliminating the need to swear packages in the individual stores the throughput of packages from these locations would naturally increase and we can achieve lower average shipping costs through the scale and route optimization that these downstream centers would provide.
Given that we only recently acquired this new technology, we don't yet have a timeline for this test.
I can say today that we're planning to test the first of these centers in the Minneapolis market.
We plan to follow our normal discipline of testing Iterating before we decide to scale up.
So now as I get ready to hand, the call over to Michael I want to end, where I started and give a special thanks to our store distribution and fulfillment center teams.
Our society has long recognized sacrifice of a central workers in the healthcare industry and public servants like police officers and firefighters.
But what's been remark one this crisis is to see how it has helped people to realize there's a huge army of essential team members at target and many other retailers, who make sure that parents can get food for their family and the essential they need to manage their health and their household.
I've long appreciated the work of these teams since I've been lucky to work alongside them for more than two decades.
But now with our efforts in the spotlight I could not be more proud to see their significant contributions recognized. Thank you everyone on our team for your hard work and sincere desire to serve all of the families that place their trust in target everyday.
[music].
Thanks, John.
As you've already heard several times today this quarter was far different than anyone would have modeled 90 days ago across multiple dimensions of our business.
And like everyone else for the last few months our team has been deeply involved in the details helping our business to effectively respond to the rapid changes in both our category and channel performance.
When you pull back from all the detail on day to day volatility a couple of themes of clearly emerge.
First this environment has provided an accelerated real time test of the investments we've been making in our longer term strategy and operational model and our business has performed better under these conditions than we would have ever imagined.
Second and also important.
This environment provides a vivid illustration of like quarterly profitability isn't always the best indicator of long term potential.
If you only looked at our first quarter S, which was down more than 60% compared with last year, you might be tempted to say that our performance was disappointing and that our long term prospects had been getting weaker.
But I would strongly a start to the opposite.
Because of what our team has been able to accomplish and deliver for our guests I believe our long term prospects have gotten stronger over the last 90 days.
Another way I wouldn't trade targets future prospects for anyone else's in the marketplace.
With that context, I'll run through our financial results, providing our longer term perspective before I turn the call back over to Brian.
Overall, our first quarter comparable sales grew 10.8%, reflecting some of the strongest growth our business has ever seen.
Total sales grew 11.3% about 50 basis points faster due to sales from our non mature stores.
Among the drivers of our comp growth comparable traffic was down 1.5% an average ticket was up 12.5% as guest consolidated their shopping trips into fewer bigger baskets.
Among channels store comparable sales increase to 0.9%, while digital cop sales grew 141%.
As Brian and John highlighted earlier quarterly averages for category and channel growth don't show the volatility we saw throughout the quarter.
On the gross margin line, our business delivered a rate of 25.1% down about 450 basis points from year ago.
Obviously this is well below what you would expect in normal times, but these times have been anything but normal.
There are three major drivers of this quarter's decline.
First we incurred hundreds of millions of dollars of incremental costs, including inventory impairments, resulting from the severe slowdown in apparel sales.
For context on these costs, it's important to note that prior to the first quarter comp sales and apparel and accessories had been growing more than 5%.
But quickly decelerated to more than a 20% to decline in the first quarter.
Put another way if those prior trends in apparel and accessories had continued first quarter sales in that category would have been more than $800 million higher.
A second source of pressure was category sales mix as we saw wide divergence and sales trends across our business. Our three lowest margin categories Hardlines essential some food and beverage each soft first quarter comp increases in the high teens are higher in contrast, our two highest margin categories home and apparel saw slower trends with.
Home and the high single digits, and the apparel decline of more than 20%.
Altogether category sales mix accounted for more than 150 basis points of this quarters gross margin decline.
The third major factor was digital fulfillment and supply chain costs as digital penetration more than doubled compared with last year, driving nearly 10 percentage points our sales growth.
As John mentioned earlier, we were already planning to reach this level of digital sales penetration overtime, but this crisis has rapidly increased the pace of digital adoption among us consumers.
But importantly, given the outstanding performance of our team in operations in the face of this unprecedented surgeon volume. We've continued to see high levels of guest satisfaction with our digital fulfillment, which is a positive leading indicator of guest loyalty engagement and market share overtime.
Moving down to the SGN expense line, our first quarter. It was 20.7% about 10 basis points lower than a year ago.
As always expense performance was driven by many factors, but there were two primary drivers of our year over year performance.
The first was the incremental costs, we've incurred as we responded to the crisis, including higher pay for hourly team members in our stores extended paid leave and backup daycare provisions across our team and enhanced cleaning routines and other investments to protect the health of our guests and our team across the country.
Against these higher cost, we realized a meaningful rate benefit from sales leverage given our unusually strong comparable sales growth in the quarter.
On the DNA line first quarter dollars were approximately flat to last year, resulting in about 40 basis points of rate improvement on higher sales.
Altogether, our first quarter operating margin rate of 2.4% was about 400 basis points lower than last year.
On the interest expense line, we saw slight decline in dollars, reflecting the benefit of lower average floating benchmark interest rates.
Income tax expense declined about 80% compared with last year, driven primarily by the decline in our profitability.
On the adjusted EPS line, we earned 59 cents in the first quarter more than 60% lower than last year.
GAAP EPS was about three cents lower 56 cents, reflecting the loss our investments and Kasper sleep.
Now I want to turn to cash flow and capital deployment, but first I want to outline number of actions. We've taken this quarter in response to the environment.
The first change as John already outlined was a reduction in the number of Remodels and new stores. We are planning for 2020, John already made it clear that this decision was based on removing distractions for our team combined with the impact of other factors and the external environment like John I want to emphasize that we haven't changed our view of the ultimate long term value.
You have these projects nor was the decision to slow down these projects driven by the desire to preserve capital.
Regardless this change in our plans will affect our anticipated capex for the year.
This plant, we expect that our 2020 Capex will be $3 billion are lower in contrast to our prior expectation of about $3.5 billion.
At this point things are too uncertain to provide a view of our plans for future year, Remodels, new stores and overall capex, but we expect to provide more clarity overtime.
The second change occurred in March when we announced the suspension of our share repurchase program in light of a high level of uncertainty in the current environment. This decision was prudent and consistent with our long term capital deployment priorities in what share repurchase only occurs when we have excess cash within the limits of our middle a credit ratings. After we fully invested in our business.
Supported our dividend.
And finally during the first quarter, we issued $2.5 billion, a new debt and added another 900 million dollar revolving credit facility to supplement our existing $2.5 billion revolver.
We took these actions out of an abundance of caution given the high degree of uncertainty in the environment and the possibility of a very challenging external environment throughout this year.
As we've pointed out many times, we entered this crisis in a very strong position with ample cash on our balance sheet strong credit ratings and a business model position to generate robust cash flow across a wide range of conditions.
Given that strength, our modeling indicated we have a very wide range of potential economic scenarios in which we'd have sufficient liquidity, even without the extra capacity, resulting from these actions. Even so given that we were able to issue new debt at historically low rates. We view these decisions as prudent affordable insurance, giving us an x.
Extra layer of cushion to accommodate even more extreme downside scenarios should they arise.
Turning to cash flow, we actually saw a really strong performance in the first quarter as operating cash flow grew nearly $1 billion compared with last year.
This performance reflected a number of factors, including an increase in payables and a decrease in inventory compared with last year, along with various timing issues, which more than offset the decline in earnings we experienced this year.
Regarding our inventory position, while the year over year decline looks good on the cash flow statement. It reflects the lack of availability and elevate a out of stocks were seeing in multiple categories.
As such we'd have elected to invest more cash and ended the quarter with a higher level of inventory in those categories. If it had been available.
In terms of deployment of cash our first quarter Capex was about $750 million nearly $100 million higher than last year.
In addition, we pay dividends of $332 million to our shareholders and returned another $609 million through share repurchases prior to the suspension of the program in March.
And finally on the ROI C line, our business delivered a trailing 12 month after tax return of 13.4% in the first quarter down from 14.3% a year ago. Obviously this decline reflects the dramatic decline in our profitability during the quarter, which does not reflect where we expect our business to perform overtime. However.
I will quickly at that even though this performance is down from year ago, a 13.4%. After tax return is still quite strong on an absolute basis and favorable compared to results across a wide array of companies and retail and beyond.
So now I want to leave you with a couple of important thoughts.
First our long term priorities for capital deployment have not wavered.
At the top of the list as our goal to invest fully and all projects that support our long term strategic and financial goals.
Second we support the dividend with a goal the build on our long term record in which we've paid a dividend every quarter in our history as a public company.
And finally overtime, we expect to returning excess cash beyond those first two years us through share repurchases within the limits of our middle a credit ratings.
These capital deployment priorities have served the long term interests of both our business and our shareholders over many decades.
It is our investments in our stores in our fulfillment capabilities in our assortment and in our team that have positioned us to succeed to now and will power our future.
The other important point pertains to the resilience of our business combined with the strength of our balance sheet.
As I said at the beginning of my remarks, I believe that our long term prospects have only gotten stronger as our operations and team have reliably serve guest during this crisis.
Because of our multi category portfolio, we were able to quickly pivot as guest demand evolved from stocking up on food and essentials to focusing on home electronics as they sheltered in place until we saw a broad based acceleration across multiple categories toward the end of the quarter.
Because of our curated digital assortment and store based fulfillment model, our operations and team adjusted seamlessly as guest increasingly chose digital fulfillment, allowing digital sales to account for nearly 10 percentage points of our first quarter comparable sales growth.
And because of the strength of our business, we could afford to make hundreds of millions of dollars of incremental investments and team member wages and benefits along with actions to enhance the safety of both our guests and our team.
As we look ahead, we're focused on continuing to deliver for our guests and our team throughout the crisis, while preparing to emerge strong and ready to play offense when our economy recovers.
And we think the opportunity is when that happens we'll be compelling.
Unfortunately, this crisis, what caused a lot of dislocation and multiple parts of the economy, including retail.
As a result, we expect to have many potential opportunities to invest including possibilities and real estate brands capabilities and obviously in our existing strategic initiatives.
So while we always monitor our short term financial results and focus on strong execution I think it's more important than ever for us to maintain a laser focus on the long term when I expect we could have unprecedented opportunities to create value for all of our stakeholders.
Now like Brian and John I want to pause and thank everyone on the team for their enlist energy alignment with our values and for taking care of each other.
It said that you don't really know how strong your team is until it goes through challenging times and I couldn't be more proud to see how our team has risen to the challenge by serving our guests and our communities over the past few months.
Now I'll turn it back over to Brian for some closing remarks, Brian.
Thanks, Michael before we move your questions I want to close by reiterating some of the points we shared today.
I want to start with something Michael said earlier.
These times or anything but normal.
Yes, we're facing unprecedented changes in the way, they're living and the way the working.
In a matter of weeks the economy has moved from historically low levels of unemployment some of the highest ever recorded.
Not surprisingly.
Consumer shopping patterns have been changing significantly and frequently as everyone tries to navigate through these changes.
And so things that we might have once taken for granted has suddenly become front and center in our minds.
We have a renewed appreciation for the things, we need and our homes everyday items like food paper goods and clean products that are now more important than ever as we shelter in place and work remotely.
In addition, we have a renewed appreciation for the people that make sure we have those products, including the people who produce them the supply chains that move them and the team that provide them in stores and bring them to our homes.
The crisis is clearly demonstrated the essential role of our team members as they offer compassionate friendly service and do everything possible to ensure that their neighbors have what they need.
Like John said, it's humbling and inspiring to work alongside our team and feel their passion and resolved as a persevere through this crisis.
They're the heart and soul of target and the reason I'm, so confident in our future.
With that we'll move to Q and eight.
Jon Michael and I'll be happy to take your questions.
Thank you we will now begin the question and answer session to ask a question. Please press star followed by one.
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One moment please for the first question.
Our first question comes from Edward Kelly You May go ahead.
Hi, guys good morning, and.
Congratulations on strong execution in a obviously challenging environment, Brian I want to just wanted to start with.
With comp. So you obviously saw significant acceleration in the back half of April what are you seeing so far in Q2 any category color here would be helpful. What do you think drove this acceleration is just stimulus and what does it tell us at all about about how to think about Q2 comps.
Overall at this point.
Hi, good morning, Thanks for joining us we certainly saw an uptick as we reported starting on April 15th as stimulus checks arrived at Crossamerica and as we reported we saw a return of a guess who is shopping our stores, but continuing to use our digital channels and we started as the normal.
As a nation across all of our categories, an uptick again in categories like apparel and home, but continued strength in our entire portfolio.
And that's continued through the balance at April that stabilization normalization of category shopping has continued in may as we continue to see an uptick in digital fulfillment. So while we're not providing guidance today, we certainly are saying a more normalized shopping environment, both in our stores and online and I guess.
Shopping all of our categories, including those discretionary categories like home and apparel.
Maybe just one follow up to that.
In terms of where you have stores in states that have begun to reopen.
How is performance of these stores compared to states, where restrictions are still high I'm, just kind of curious as to what you're learning there.
As to how we should be thinking about the business.
Once a broader reopening trend really emerges.
We're watching it carefully it's still very early but I think what we're seeing throughout these these last few weeks is the trust that we've earned with American consumers, who continue to turn to target for those household essentials, their food and beverage and now apparel and home items as well as the strength we've seen in hard.
Line throughout the quarter as Americans still work from home and educate their families at home we provide essential services throughout the endemic and we're seeing that continue as states open up across the country.
Great. Thank you. Thank you.
Thank you. The next question is from Chris Horvers with JP Morgan you May go ahead.
Thanks, and good morning, So a couple of financial question. The first one is can you talk more quantitatively about the gross margin drivers, especially the markdown inventory reserve in the digital shift components of the decline.
Hundreds of millions of dollars for the inventory component, which is 300 million. That's hundred 50 basis points. So how close are we and then as you look ahead to Q, given what you've seen in apparel over the past month.
Has it cleaned had your inventory cleaned up and how do you think about the potential markdown risk in the second quarter.
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All right Chris can you hear me.
Yeah, well the anticipation is very high so [laughter] alright, I had a great answer that you heard know all try to do my best Paraphrasing again to decompose margin a little bit more if I had to dimensionalize. It into the three biggest drivers of what we saw in Q1, the first would be.
Set of merchandising actions that we took throughout the quarter and the biggest of which to your question was the inventory write downs and adjustments that we were made especially in apparel given the deceleration we saw in apparel throughout the better part of Q1, that's probably the biggest factor and then as I mentioned in my remarks category mix.
About 150 basis points would be the second biggest sector and in the third would be the pressure from supply chain in general and there's a couple of things there on a portion of our investment the team shows up in margin because supply chain labor shows up in margin and then the mix shift to digital is there as well, but I think it's worth pausing for a moment.
On that mix shift to digital in the rate pressure that comes with that because I want to spend a second on how I think about digital economics, because I think theres real risk in over rotating on the profit rate headwind that shows up there for a couple of reasons.
The first is for the vast majority of those digital transactions and especially the ones what I guess taken advantage of our same day services.
The sales dollars the market share dollars in the variable profit dollars from those sales are definitely a good thing.
And second and this is most important the economics of a digital transaction as I've said before are so much bigger than just the single transaction.
When we see guess engage with more of our fulfillment choices they become stronger customers of target and we build relevance with them in total and that's where the economics of digital get most powerful as I referenced in the financial community meeting discussions few months ago. When we see a guest used dry but for the first time they spend more at target in total.
Hello, and even more in store than they did previously and so there is a powerful accelerant of guests becoming stronger users of all of our services and we had 2 million guests use drive up for the first time this quarter and so the long run prospects of that digital growth in terms of what it means with relevancy to our guests I think are very powerful.
Chris It's Brian when I talk a little bit about Q2, and I'll answer your question, but my question that's on everyone's mind right now.
Before I talk about Q2 will go back to the volatility in rapid changes we saw throughout the first quarter, which makes it really difficult for us to project with any kind of certainty how consumers are going to continue to shop in the second quarter and for the balance of the year as we sit here right now I think the guest that.
Wrapping a target is still seeing the benefits of the stimulus Jack Theyre shopping in our stores and we've seen store traffic increase we're seeing them shop, all of our categories, while continuing to utilize our same day fulfillment services, but our ability to project, how thats going to play out over the balance of the quarter or year.
Is unfortunately, something that we can't do today I think there's just too much uncertainty too many different variables as we sit here today, we spend lots of time, each and every week talking about what will happen when and if students go back to school or back to college, how we'll get shop during the holiday season, starting with Memorial day.
It's all to be determined right now and one of the things that I think we're most proud of as we think about our first quarter performance is how we've adapted week by week.
Almost day by day to the changing consumer needs and the flexibility that you've seen in our system is something that we'll lean on throughout the balance of the quarter and the year, but I know everyone's anxious for us to provide a perspective on the second quarter in the full year. Unfortunately, our perspective right now is that we have to be flexible we have.
To be adaptable, we have to continue to meet changing consumer needs and I think we've demonstrated the ability to do that in the first quarter.
I guess, just the push a little bit on I mean to the extent that.
How many do as you booked at inventory reserve I mean, how did you think about.
The ability to take some of that second quarter risk down I mean is there a scenario where you could see that that gross margin impact from clearance be anywhere near.
What you just experienced in the first quarter.
Yeah, what I'd say, Chris is this is what our teams do each and everyday and so we react to changing trends and take inventory actions appropriate and I'd give just a huge hats off to our merchandising teams who have worked through the volatility in sales trends throughout the quarter. Both the softness in apparel that leads to some of the write downs were talking about in Q1, but in every cat.
Gory that seen trends deviate from history in such a meaningful as.
And said another way, Chris I think we feel very good about our inventory position as we go into the second quarter.
Understood. Thanks, very much guys. Thank you.
Thank you. The next question is from Ed you remain with Keybanc capital markets. You May go ahead.
Hey, good morning, Thanks for taking the question you guys have done an incredible job ramping drive up I guess as you kind of his technical service today, what are the key letters.
And saying throughput there is that as staffing levels, all social distancing or is that isn't literally like the physical parking spots and I guess as you think about ramping it into a more normalized environment on what's your expectation on keeping some of those customers that are that are trialing. It right now thank you.
And I'm going to let John answer this question, but I am smiling when I think about the fact that during the first quarter. Our same day services grew by 278% I think John and his team have shown their ability to ramp up as needed.
Good morning add yet I'll, just start with Brian left off there I think thats exactly right and you saw it accelerate throughout the quarter.
Like I said in her remarks drive up accelerated to 1000% growth in the month of April.
So from a limit or perspective, we think.
A couple of things, which were looking to address and we don't really view. These is limited as as we know these are things that come with volume one is parking spaces to your point and you'll see us add additional parking slots over the next several months. The second is in store space and we are already in process of adding incremental storage space.
Flexible in America incremental storage space for the store team. So we feel good about that but from a process perspective from a team perspective, there are no limit ers and we've talked about this for a few years now about the scalability of the model of using the stores is hubs and I think thats really shown through.
This quarter. The other thing I would add that we're really excited about from a drive up perspective.
As I said Weve throttled back on expanding temperature controlled so fresh frozen.
Types of products into drive up.
Earlier this quarter, we presume that Minneapolis also added Kansas City and early on our plans had been to get to three states. This year, and then POZEN and reacting scale over next year. Our plan now is to accelerate that and to get to as many stores as possible over the next several months because it's clearly something that our store.
That our guest would like our stores to deliver.
We're excited about the opportunity there were excited to deliver another service for our guests in the stores ability to execute that has been just phenomenal.
It's sitting here today.
I've said, a number of times to the team I think we've accelerated our digital fulfillment awareness with against and fulfillment capabilities by upwards of three years and I think we'll come out of this first quarter with a much greater awareness around the type of services target provides.
The trust that we're building in same day, the knowledge that guests have today that if they placed an order with target dotcom within two hours they can come to our stores and pick up they can pull into one of our drive up lanes and within two minutes, we'll put it in their trunk or will have a chip shopper bring it to their home within two hours. So I think we're still going to see a dramatic excel.
Operation in awareness and utilization of those same day fulfillment capabilities.
Great. Thanks, so much.
Thank you then next question is from Matt Mcclintock with Raymond James You May go ahead.
Hi, Yes, good morning, and congrats to you and the rest of the target team.
Oh boy I want to kind of think about this uncertainty.
In the macro on from a different angle.
How do you think about consolidation of the industry going forward.
Whether that be through your digital capabilities or whether that be through quite frankly retailers that don't reopened their doors and how does this compare and contrast to prior economic difficult scenarios work recessions et cetera.
Were maybe that type of consolidation didn't happen. So we try to assess your risk going forward.
We can actually think about this relative to the past. Thank you.
So Matt Thanks for joining US again this morning, I think for several years now we've been talking about this movement towards consolidation in the industry and the bifurcation that's been taking place over last couple of years with pronounced winners and unfortunately losers in the retail environment I think unfortunately, and I do say that sincerely.
Fortunately due to the pandemic I think we're going to see an acceleration in that bifurcation and we've already seen a number of retailers filing for bankruptcy. We expect even further store closures over the next couple of years and I think it's going to only accelerate the opportunities that.
Companies like target will have to consolidate market share and continue to grow profitably in this environment.
I also think from a consumer standpoint, as we survey our guests and as we talked to consumers I think we're going to see a consolidation in how people shop, and I think our multi category portfolio positions us very well in an environment, where today's consumer is looking to make fewer stops and the ability to come to target and.
Pick up their food and beverage needs. Their household essentials that are beauty products their home apparel items and their household essentials in hardlines, each and every week makes us an attractive choice in a consolidating environment. So sitting here today during obviously a point of crisis across America.
While.
We're very humble as we look at our performance in the role. We played we're equally optimistic about the future of target and we think this consolidation both.
In the retail market and how consumers shop will benefit us for years and years to come.
Thanks for that color and then just as a quick follow up on all in motion you clearly launched into a difficult situation, but I was wondering we get an update on that brand because it does seem like.
Athletic apparel has actually done quite well relative to the rest of the apparel industry. During this this type of crisis. Thanks, Matt I'm glad you asked and while we talked about obviously some softness in apparel throughout the quarter. One category that did perform really well was the performance category.
As consumers are working from home and spending a lot more time at home that was certainly a category that perform well and we are very excited about the potential of all in motion.
Thanks, a lot best of luck. Thank you.
Thank you then next question is from Karen short with Barclays. You May go ahead.
Hi, Thanks very much.
Congratulations on managing through obviously very tough quarter.
[music].
I just wanted to go back to the gross margin for second and I guess like the question.
People, who are a little more skeptical on.
How this year is going to shape out for you kind of harp on the fact that there will be significant inventory liquidations across all of retail.
And that that will be something that you have to address.
Pricing perspective, and Eurostar and I wanted to just get your thoughts on that a little bit because it does seem that you have pulled forward. Some of the markdowns that you would otherwise see into Q2 Q does seem like it might shape up to be better than you expected, but wondering if you could just give some thoughts on how you're thinking about it that in terms of your inventory from like a third.
Fourth quarter perspective, even.
Yes, I can start thanks for the question is.
As Brian mentioned, we feel really good about how our inventories positioned especially in apparel right. Now. So we feel like we took the right actions in Q1 to position us right.
Pursue the sales opportunities in front of us with respect to the price and promotion environment again, that's something that we.
Got a lot of history, navigating and will be committed to be priced right with appropriate promotion in any environment around us much pretty carefully what's happening in the competition, but especially to see some strength returned to apparel at the end of the quarter I think we feel really good about the go forward prospects, yes, and carrying one of the teams that we really need to acknowledge.
As we sit here today is our target sourcing team who throughout the quarter has done a terrific job of some points cancelling and then chasing inventory as we've seen changes in trends and the relationship we have with our own brand vendors the strength of our vendor matrix that supports as each and everyday.
Today is something that's really put us in a unique position and at sourcing team is one of our key capabilities that allows us to adjust to market need so that team served us well in the first quarter and will position us well over the balance of the year.
Okay. That's helpful. And then I just want to ask one other question it seems like at least on the food side.
We're definitely seeing a lot of conventional competitors.
Really raise prices pretty rapidly.
Right of the heightened demand and you guys seem to be holding price price points or price positioning so.
Can you maybe provide a little color on how you think that may be helping you gained share because it does seem like the price gap widened to unprecedented levels.
And I say that undershoot side, specifically and hearing as you've heard us talking about for a number of years now we're committed to being priced right daily each and every day and that includes during this pandemic and as we go into the second quarter and it certainly includes our food and beverage category. So we've seen very little change in our everyday pricing throughout the call.
After you have seen a reduction in promotions based on obviously limited supply of certain products, but our commitment to delivering great value to our guest in food and beverage and in all of our categories persists as we sit here today.
Great. Thanks, Thank you.
Thank you then next question is from Simeon Gutman with Morgan Stanley You May go ahead.
Jimmy in your line is open we can't hear you can you check your mute feature please.
And we're not getting the response I'll go to the next question operator, why do we move on and perhaps we can come back to Simeon later.
Thank you are in next question is from Paul images with Citi. You May go ahead.
Thanks, its Tracy Kogan filling in for Paul I'm two questions I was wondering about that new customers. He said.
You gain during the quarter.
Is there any particular demographic group, you're attracting and then I was also wondering what youve seen with repeat purchases from customers and then I just had one follow up thanks, yes.
Actually we talked about the fact that we saw a 5 million new guests used target dot com and John talked about the number of new users for drive up 2 million New drive up users during the quarter. So we're certainly looking at the profile that customer, but we recognize the stickiness that comes along with that and.
I'll, let John talked about the reaction, we get when people use our same day services and the high net promoter scores. We continue to receive and I think we're going to recognize coming out of this first quarter and the pandemic that gets we're going to continue to gravitate towards the convenience and the contact free element that drive up allows.
So we're seeing in a great response lots of new gas using target dot com and drive up and we expect that to continue over the balance of the year.
The thing I would add the great thing we saw throughout the quarter and again really proud of our teams is.
Drive up is our highest net promoter score shipped is a very high net promoter score pick up as a high net promoter score in the in store experience.
Net promoter score all across all of those scores absent unusual week to week volatility that we see.
All of them remain steady even at the peak when we were as the as things accelerated very quickly.
Into our digital channels, we saw great net promoter scores and as Brian said that is the best indicator of of guests coming back to US we've already seen 40% of the drive of gas repeat purchase so.
We focused all quarter, along with all of our teams on ensuring that we can provide a great guest experience and when we do that we see them come back and use our services again.
Great. Thank you and then and then my follow up. Please if you could comment generally on the national brand versus private brand performance in the quarter and then specifically how good and gather outperform thank you.
Well I'll start with good and gather and that was an important part of the over 20% growth we saw in food and beverage you'll see us actually as we move into the second quarter begin to expand the number of items.
In the good and gather brand so we feel really good about the guest response.
During the pandemic and we expect that to continue over the balance of the year.
And at this point I, probably need to just pause and thank many of our national branded vendors and the support that they provided us during the first quarter, obviously unprecedented levels of growth we talked about the type of growth. We saw in household essentials in food and beverage but in.
So many of our categories and our national branded vendors that a superb job of working hand in hand, with our buyers or supply chain team to meet the demand and get us the product, we need and a big thanks to all of our National branded partners. We appreciate everything they've done.
Thank you.
Thank you then next question is from Robby Ohmes with Bank of America. You May go ahead.
Oh, Hi, guys my congrats as well on the execution pretty incredible. So so thank you for that because I am a customer.
Actually just some follow up on digital one was on shipped I was wondering if you could.
Talk about the membership growth that you saw in the first quarter and we've seen pretty dramatic.
Apt on download data on shipped and also are you signing up a lot more.
Partners on shipped and then my follow up would just be.
Maybe for Brian or John or or Michael.
Just with this huge digital volume are there any thing your anything you're learning about.
Whether it's going to be tougher easier over the long term as you average out at much higher digital volumes.
Are you seeing new ways to get the profitability opt that maybe you weren't seeing before this big ramp up in volume. Thanks.
So Robbie why don't we let John start by talking about the outstanding performance, we saw with shipped and then we'll come back and talk about digital profitability overtime.
Morning, Robby good to talk to you.
Shipped.
Consistent with everything else, we said about digital has seen saw significant acceleration and that in their team did an outstanding job hiring into that are getting shipped shoppers order volume over the course of the quarter for ship the business in independent of targets portion of that.
Order volume was up two times in April that was up three times.
They had 60% growth in membership so a significant acceleration in members. They engaged a 100000 additional shoppers so doubling the number of shoppers they had a going into the quarter and so a significant acceleration across target. We saw a 300% increase in sales to last year through our show.
Hip channel, so again significant acceleration there Nick I like I said on the previous car that probably haps. Most importantly, the NPS score very very high they maintain that throughout the quarter a few dips when when sales really accelerated quickly within a week to 10 days, but beyond that the team did an exceptional job and really.
Getting shoppers to meet that demand and so we're really enthusiastic about the ship performance and encouraged by what we saw.
And I can maybe just chime in on the the prospects for increased efficiency overtime.
We've seen across wherever Weve had growth, whether it's the growth and drive up over the last several years order pickup volume helps us with volume, we can bring efficiency and when it comes to digital as John mentioned, we've been investing and planning and the capability support. This volume. We just started be three years from now and so we've seen an acceleration.
For what we would have expected to take three years. That's now happened in a matter of weeks and so as we get the chance to optimize some of operations against that volume, we should be able to drive increased efficiency overtime.
But the thing I'm most excited about on the digital front that we've touched on a little bit already is just the opportunity we have to capture relevance with guess as their shopping habits change we know over the long run that wouldnt guest behavior changes and Thats why family with a new baby in the house is such an important guess milestone for us where we want to show.
Go up because that's when shopping habits can change back to college. The first time, you move into your new home those milestones matter to us as a retailer and always have because that's when shopping habits can change and I think across America right. Now we're seeing an acceleration in the change of shopping has habits as it relates to digital and the way we've shown up with.
280, plus percent growth in digital in April means, we're capturing a lot of that mindshare and those new teams as they are forming yes, Robbie I just finish up by going back to our strategy and using our stores as fulfillment hubs and as we talked about our performance with digital although up 141 point.
Rent growth rate is a stunning number the number I really focuses on is the same day fulfillment, which grew by 278% and that was all fulfilled by our stores and if you actually look at a different metric. If we think about store fulfill comps during the first quarter. While we grew by 10.8% overall, if I look at that store fulfill continent.
That increased by over 9%. It means our stores are driving tremendous productivity and they are the center of our strategy and Thats a number you'll hear us talk about more and more and more so when we talk about store comps during the quarter. They look relatively low at just under 1%, but those stores actually drove over 9% comp growth during the.
Quarter and from an economic standpoint, we know overtime, that's a really healthy and profitable transaction. So the stores did tremendous work during this quarter and America turn to target stores, because they trust our service in our reliability and rewarded us with a store fulfilled comp of over 9%.
Operator, we have time for only one last question.
Thank you. Our last question is from Oliver Chen with Cowen You May go ahead.
Thanks, a lot Brian what would you prioritize at some of the most surprising and or permanent changes from the crisis and John I was curious about the future of automation robotics.
Especially as you do a really great job using stores that hubs.
I see that playing out in store, which drive up and with inventory management accuracy. Thank you.
Oliver why don't I start and when I think about the quarter and some of the learning from the quarter I'll have to go back with the importance of stores and at the start of the pandemic and we've talked about the different chapters America turned the target stores and Thats, where we saw the uptick thats, where they came for household essentials to stop.
Stock up on food and beverage Wynn America was asked to shelter in place. They started to use our same day fulfillment channels and we're picking up in store and driving to our parking lots to use drive up or using a ship shopper, but when I think about the quarter. It just reinforces to me the important role that stay.
Doors play, both our traditional stores and even our smaller formats in urban markets. The number of emails I've received from guests in New York City in Boston, and Chicago thanking us for that small format in their neighborhood that supplies all of their household and family needs during the pandemic. So my.
I highlight and takeaway is stores are vitally important and storage will continue to play a really important role to America as we go forward.
And then on your second question Oliver on automation analytics technology as you know we've been pursuing that on several fronts I think.
To the last half your question about.
Inventory allocation inventory placement as you know, we've been developing analytics and technology across something we call inventory planning and control I PC.
We're about third of the way into that deployment, we paused much of that for this quarter. The teams are assessing right now what timeline, we want to get back on to begin deploying that further across the chain.
We feel really really good about the opportunity for us to improve what we're doing from an inventory placement.
With that technology and analytics, and then from an automation perspective.
We've talked about we had a analytics or a automation pilot going on in Minneapolis also at Perth, and Minneapolis, we actually deployed that automation to four more locations, we have not started that up yet.
This because that require some travel and we want to we will take the safety of our teams into account as we think about getting back into the travel game, but when we are able to do that we'll get that to four more locations. This year and then continue to expand on a per the teams have made great great progress here, even while we haven't been able to get into that building.
And so when we do get into that building, we'll do some some final testing to scale it out and then begin.
As I said, a couple of months ago to think about where we deploy that next somewhere within our network in an existing facility. So you'll see us continue to expand automation I. When it comes to store automation I think we've shown the ability to scale very very rapidly with our teams and with the technology that we have provided them and so we feel very very good about.
Our productivity and scalability and reliability of our current processes in teams and we'll continue to explore other avenues as we go forward to improve that.
So to John's point automation will be important Oliver, but as we sit here today I think the most important thing to focus on his execution and I think in this environment. We've earned the trust of American shoppers with great execution, and our commitment to bump providing a safe shopping environment and you'll see us continue to commit to safety and trust as we go.
Forward over the balance of the year. So operator that concludes our call today I want to thank everyone for joining us I hope you stay safe and healthy and we look forward to the day when we could be meeting again face to face. So thank you.