Q3 2020 Target Corp Earnings Call

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Ladies and gentlemen, thank you for standing Bob.

[music] welcome.

Good day target Corporation third quarter earnings at least probably call.

During the presentation, all participants will be any listen only mode. Afterwards, we will invite you to participate in a question and answer session.

At the close of the prepared remarks, we will open the queue for the question and answer session.

At that time, if you have a question you will need to press star one on your telephone as a reminder, this conference is being recorded Wednesday November 18 2020.

I would now like to turn the conference over to Mr., John Hulbert, Vice President Investor Relations. Please go ahead Sir.

Good morning, everyone and thank you for joining us on our third quarter 2020 earnings conference call.

On the line with me today for Brian Cornell, Chairman and Chief Executive Officer, John Mulligan, Chief Operating Officer, and Michael Fidel Castro Chief Financial Officer.

And a few moments, Brian John and Michael will provide their perspective, and the third quarter and our priorities as we move into the holiday season.

Following the remarks, we'll open the phone lines for a question and answer session.

This morning, we're joined on this conference call by investors and others, who are listening to our comments via webcast.

Following 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 for subject to risks and uncertainties and most important of which are described and our SEC filings.

Also in 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 quarter and our focus going forward Brian.

Thanks, John and good morning, everyone.

Before I move to our third quarter results.

I want to acknowledge our team.

And an incredibly challenging environment. They have stayed focused on our guest looked.

Looked at for each other and bill.

For the purpose and a clear set of priorities, we've had and place for several years now.

Making target and even more relevant and response of company for the millions of families. We serve every week.

The pandemic has presented new challenges for all of us and our team and successfully navigated every one of them.

They've stayed laser focused on safety agility and reliability.

As a famously adapted to abrupt changes and guest needs and shopping pattern.

They've handled supply constraints and essential categories, while chasing inventory and long lead time categories that are experiencing explosive growth.

David at comic President and a friendly face store again.

For creating normalcy at a time when hardly anything feels that way.

And.

Our team members have actually played an act of positive role in our communities dirty and incredibly turbulent year.

With a deepening level of trust, our guests are placing and our team and our brand. We've continued at the very strong business results.

Third quarter sales grew nearly $4 billion over last year.

Bringing our year to date gross to more than $10 billion.

This unprecedented growth for.

And in the quarter end of year has been driven by meaningful share gains across every one of our core category.

And it gets increasingly rely on target for reliably and safely sort of their wants and needs.

Based on the cost leverage driven by steeply higher sales.

Our business continues to deliver and that's the bottom line performance. Despite the outside investments, we've been making and our team safety and digital fulfillment.

Our third quarter adjusted EPS of $2.79 establish at another record high for of the company.

And was up more than 100% from last year.

Third quarter of comparable sales increased 20.7%.

Reflecting.

4.5% traffic growth combined with an increase in average ticket of more than 15%.

Since the pandemic began in March we've experienced a meaningful acceleration and basket gross.

Both in stores and online as guest of consolidated at their shopping at a much larger for it.

Across channels.

Our store comps grew nearly 10%.

Or digital comp sales grew 155% contributing nearly 11 percentage points to the company comp.

Within digital we continue to see the strongest growth and are seeing day surface at pick up drive up and ship.

Which together grew more than 200% in the quarter.

These services are fast convenient reliable and contactless.

Which explains why they continue to generate very high levels of guest satisfaction.

While our financial reporting accounts. These same day orders as digital these services are entirely enabled by our stores.

Specifically.

Day orders are fulfilled by our store team along with ship shoppers, who rely on store inventory and system to deliver for the front of our stores our parking lots for yes front doors within a couple of hours of receiving an order.

The non same day services well over half of our packages, we shipped to get at home or also fulfilled for more stores.

For mining speed for gas or reducing shipping cost and our piano.

Altogether Betweens day day services and packages shipped towards you know about 75% of our third quarter of digital sales for fulfilled player stores.

And of course, if you add that onto our conventional store sales of more than $18 billion you can see at more than 95% of our total third quarter sales for fulfilled by our stores.

The stores just hub model is a foundational element of our strategic plan, we announced at the beginning of 2017.

Just over three years ago.

Our performance for the first three quarters of Twentytwenty, which includes digital sales growth of nearly $6.5 billion and of store sales increase of more than $3.5 billion isn't.

Is the direct result of our stores. This hub strategy combined with the tireless work of our team for bringing to life.

In terms of the cadence of our business throughout the quarter, we began with mid teen comp growth and August.

This reflected a slow start for the back to school season.

As many school districts across the country began their year end distance learning mode.

However sales trends.

And back to school back to college, and our overall business strength and in September driving comp growth in the mid 20% range for the month overall and.

October comp growth to settle back and to approximately 20% consistent with our comp growth for the full quarter.

Across our core and merchandise categories.

Third quarter growth was strongest and hardline.

Which non comp growth in the mid 30% range.

Within Hardlines result for strongest and electronics, which grew more than 50 per cent driven by particular strength and computer software video games portable electronics and office of quit.

Within our style categories results were strongest at home, we saw comp growth in the mid 20% range with the strongest growth and decor and kitchen.

Comp sales and apparel grew by nearly 10%.

Led by results and intimate and sleep work as well as men apparel.

Consistent with the second quarter, both are essential and beauty and food and beverage categories saw third quarter of comp growth and the high teens.

And essentially and beauty, we saw strength across the entire portfolio with the strongest results and paper and pet.

Similarly, and food and beverage we saw broad based growth for the particular strength and adult beverages and dry grocery.

Following our announcement of the second quarter. This was the first full quarter and which are starting wage was $15 for higher across the country up from $13 of your go.

The attainment of this milestone was the combination of of commitment we first announced in the fall of 2017, when our starting wage across the country was $10.

Our team has always been at key differentiator for our stores and our brand.

And this $15 commitment was intended to attract reward and retain top talent.

It has long been the best team and retail.

Beyond our longer term goal for raise target starting wage Fisher.

This year, we've also focused on recognizing our teams outside efforts during these extraordinary times.

Specifically, we rewarded for separate recognition bonuses, so far and Twentytwenty.

Most recently in October we awarded $200 to each of our frontline team members in support of our plan to invest for the $1 billion and her team for the year.

As we built our plans for the fourth quarter, our team focus first on flexibility and agility and.

Knowing how volatile and unpredictable the external environment continues to be.

We focused on leveraging target strength, including the emotional connection between our brands and target.

And the convenience and speed of our stores and sub model.

We're focused on listening to our guests to understand whether it's for anything and.

And they've told us that safety is one of their top concern.

So on top of our goal to be the easiest place of shop, we're committed to being the state this place for shop as well.

In support of that goal, we've implemented a number of technology improvement to make shopping at target for contact free.

These include and enhancement for self service lanes, which means guests no longer need to use the hand scanner to pay with their wallet function and our app.

We made changes at drive up that eliminates the need for a team member to scan at guess phone when they deliver and order.

Weve rolled out a new capability and target dotcom, allowing guests at check in advance and see whether we're currently metering traffic and their store and allow them to reserve of spot in line before leaving home.

In addition, we've all three of our promotional cadence to avoid event that typically cost crowd.

And we announced that will be closed on Thanksgiving and open at the regular time on Black Friday.

Rather than concentrating holiday deals around Thanksgiving and Black Friday.

We've spread and our Black Friday offers throughout the entire month of November.

Weekly promotion and spread across different categories throughout the month.

And in the spirit of transparency and trust.

We have a shirt our gas that they see any of our black Friday items for a lower price later in the season will happily make up the difference or extended price match policy.

To minimize lines, we've added more than 1000 mobile checkout devices across the chain allow our team members to help guest check out anywhere in the store.

We've also added thousands of gift item eligible for same day fulfillment.

And for entering the holiday season with more than doubled the number of drive of parking spaces compared for the year ago.

In addition, we then at fresh refrigerated and frozen items for a pickup and drive of assortment and more than 1600 locations across the country, making.

Making this the first holiday season, and which guests from coast to coast and use these convenient services that pick up everything they need for a holiday meal.

We're also continuing to expand the number of our merchandise categories available for ship service, most recently and and kids and adults apparel.

This change provides a new contactless option for gas and shop these categories and at them delivered their front doors and as little as an hour.

All many things will be different this year are against the told us that they still plan to celebrate the holiday and.

And we know that we looked at target for some holiday magic.

That's why we're so excited about our recently announced partnership with at Aaos Schwartz.

New for this holiday season target and at Aaos Schwartz have collaborated on an exclusive 70 piece toy collection.

With many items priced under $20.

This collection will be available at target stores nationwide and target Dot com and the flagship at Aaos Schwartz store in New York City.

Beyond this unique collection. This holiday we for is our biggest ever list of top toys, including more than 600 exclusive line of.

Which will feature at an incredible value all season long.

And of course, we're focused on bringing targets brand promise of life by operating value and quality with hundreds of order him and priced at $3 $5 and $10.

And target Dot com more and more of our guests for shopping for the core using debt and your space technology, which makes our digital shopping experience for inspiring than ever this.

This feature allows guests to visualize what Christmas trees will look like and their home as they prepare to decorate for the holiday.

Yes, who utilize this threed rendering feature our two times more likely to purchase the tree compared with an average digital guest.

And speaking with our guests we know that finding the right gift can be a source of strength during the holiday.

So this year and make it easier than ever for our guests to share of the joy, we've expanded our gifting assortment, including items for even the toughest individual on their list.

With many items priced at $15 or less.

We are offering incredible value they get easier to celebrate the season with family and friends.

And for the holiday season is top of mind right now we shouldn't forget that the fourth quarter also includes the full month after the holiday.

We're planning to kick off the new year on a positive note for the focus on wellness and nutrition.

New exclusive beauty and the introduction of seamless t. shirt.

And performance bottom to celebrate the one year anniversary of our new activewear brands, all and motion.

And speaking of beauty, we couldn't be more excited about our new long term strategic partnership with Ulta beauty.

Which we announced last week.

Because it and bodies both style and frequency.

The beauty category is ideally suited to our strategy and.

And it's and one of our strongest growing categories over the last few years.

This new partnership will help us to build on that success for.

Finally, our guest access at dozens of new beauty brands nationwide.

With elevated service.

And presentation and select store location.

We plan to open the first 100 Ulta beauty shop in shops later in 2021 with a potential dope and hundreds more.

For the years beyond.

So now before I close one.

I want to provide a brief update on our plans for target Twentytwenty, one financial community meeting.

Well no one can accurately predict the future of the current a buyers and the impact of potential vaccine.

We decided at hostess, meaning virtually and 2021.

We made this decision out of an abundance of caution in keeping with our focus on the safety of our team and our investors.

We look forward to hosting it again and person beginning in Twentytwenty two.

So now as I get ready to turn the call over to John and when it come back where I started and.

Acknowledge our amazing team.

When I arrived at target a little more than six years ago I already knew the target is an academy company and.

Placement of tracks and develop the level of talent. That's the end of the other company.

That was already true before I arrived and I couldn't be more proud of the team's investments we've made and recent years.

Investments and tended to cement target physician as an inclusive of home for top talent.

What I didn't appreciate and till I became and Merced with this team is the warmth of the culture and the teams and their desire for target of play of positive role in the world.

This desire off and shows through and our marketing and our assortment and you could certainly see it and our stores.

But for those of us to at the privilege of working with every part of this team we see at every day behind the scenes.

Even when no one else is looking.

So I'll close with a simple thank you to this team for.

For your passion and make target of welcoming place for all families and.

And a great place to work for everyone on the team.

With that I'll turn the call over to John for an update on our operations and plans for the holiday season John.

Thanks, Brian.

When you pull back and consider what's happened in our business. This year, it's clear that a couple of defining themes of emerged. The first is flexibility you seem at play out and our merchandising assortment, enabling us to satisfy our guests rapidly changing wants and needs throughout the year. You've also seen at play out and our operations as our stores is hubs model allowed our team to pivot.

And Luckily and guess move their shopping between stores and our digital channel.

This flexibility will continue to serve us well and the fourth quarter and beyond given that we continue to face and elevated level of uncertainty across multiple aspects of our business.

Our third quarter results continue to demonstrate the power of our same day services to deliver speed and convenience for our guests well driving an impressive amount of the company's gross.

And the third quarter, our same day services grew well over 200 per cent compared with last year, adding more than $1 billion of incremental sales here.

Nearly $700 million of this growth was from a drive up service alone, which increased more than 500 per cent compared with last year.

Amazingly this growth was not at the expense of in store pickup which increased more than 50%.

And we'll ship to me is the smallest of our same day services. It continues to grow rapidly as target sales on ship increased nearly 280% and the quarter accounting for more than $200 million of incremental sales.

I want to pause and give a shout out to our team at ship and congratulate them on an incredible year of growth and expansion, which has included a doubling of their shopper base.

Altogether, our third quarter digital sales grew more than $2 billion compared with last year per.

For perspective $2 billion is more than our company's total digital sales for the entire year end 2014.

Somehow I think I should pause for a second and let that thinking but.

But instead, maybe I'll pile on by making the same point, a different way and point out that between the first three quarters of 2014 and the same period. This year the compound annual growth rate of our digital sales was 45% over that six year period.

Another area and what you've seen amazing flexibility is and the management of our inventory as we've adapted to huge swings and the pace of sales among individual categories and work to support overall growth that's been well above expectations.

As I mentioned last quarter, while we continue to make progress we seem to be persistent inventories shortfalls for a couple of distinct reasons.

First and several of our long lead categories like electronics home and apparel. Our team has been playing catch up given that we experienced and unexpected sharp and sustained explosion and demand for these categories.

The team has done a great job of chasing and expediting inventories to support these categories, which enabled the unusually strong comps that Brian outlined earlier even.

Even more encouraging we ended the third quarter and a much better position and where we started and we expect to see additional recovery and the fourth quarter.

The other driver of inventories shortfalls, and 2020 is related to industry dynamics as the producers of cleaning and paper products have been working to ramp up production and the face of and dramatically higher demand across all of you at retail.

I believe we're also making progress and these categories.

For not yet back to pre covert levels weeks of supply improved during the quarter and we expect to make continued progress and the fourth quarter overall.

Overall, our progress is reflected in the aggregate numbers.

Specifically, we started the third quarter with inventory down about 3% compared with year ago and ended more than 11% higher than a year ago, after a quarter and which our sales grew more than 20%. This.

This is remarkable progress and puts us in a much better position as we move into the fourth quarter.

I also want to highlight the flexibility of our properties team. We just opened 18, new stores and October for the year. Our team successfully opened 30, new stores of which 29 were small format, making 2020, the biggest year of small format openings ever.

And any year setting records would be notable but in a year and which coded caused us to delay our new store construction, it's been amazing to watch how quickly our team was able to restart such a large number of project and successfully bring them to completion in advance of the holiday season.

Beyond flexibility another key theme this year at capacity as we consider the physical resources will need to support our business overtime as.

As Brian mentioned, we've already grown our sales by more than $10 billion for the first three quarters of 2020.

And again for context that $10 billion of incremental sales is more than our total sales growth between 2011, and 2019 and eight year period.

Right well of wondered whether compressing eight years of growth into less than a year was even possible, but clearly the capacity was there and.

For more capacity as a function of replenishment as well as fulfillment. The question, we hear and most often is whether we'll continue to have enough capacity for our digital fulfillment.

And in that regard the primary factor is our strategic decision to place our stores at the center of fulfillment for.

Relying on the same asset to fulfill both our conventional and digital sales for.

The key to fulfillment capacity is the store asset itself.

And the speed with which we can move inventory through it.

You might refer to that as our ability to increase turnover, but sometimes you'll hear engineers like Michael and me preferred of that metric as throughput you know just for selling smart.

As we said in the past sales per foot because of useful proxy for throughput. So let's consider how that has progressed. So far this year as a baseline for the full year and 29 team average sales per foot at target for about $320.

And so far this year that metric has grown about 19% compared with last year.

So just as a thought exercise if you assumed we were going to grow our sales productivity at that same pace for the full year, we'd end 2020 at about $380 per foot and.

Need to pause quickly and reinforce I'm.

I'm using a hypothetical 19% number im not providing guidance for the quarter, just giving us something to anchor on.

So the critical question is after growing sales per foot and the lower end of the $300 range and so the upper three hundreds three of any more capacity and our stores.

The answer is certainly yes.

Last year, and our second quarter call I mentioned at our top quartile of stores average well over $400 of foot back and 28 team and that number has grown to nearly $500. Since then.

And we can average nearly $500 of foot on nearly 500 of our most productive stores I think it's clear we have capacity to grow the chain average well beyond where it is today and.

And that capacity would be there even if we kept doing what we're doing today, but of course, we continue to find ways to improve throughput.

And one of our newest options is to deploy sortation centers and markets where delivery density is high and.

A better assess this concept we recently opened our first Sortation center here and Minneapolis.

Which will allow our teams to test learn and as fast as the ultimate potential before determining whether to rollout the concept for that.

The business case for a sortation centers straightforward and moving the sorting and stage and cross this out of the stores. It frees up backroom space, enabling additional throughput stores can simply focus on pack and the orders, which are then transferred multiple times per day to the Sortation center, where they can be sorted and stage at a larger scale driving per unit of efficiencies and potentially reduce.

And seeing the number of split shipments.

In addition, we can reduce per unit shipping costs by deploying technology from Grand Junction, which helps us to allocate packages across different providers and applying recently acquired technology from Deliv debt.

For us to optimize for rotation and injection into those provider networks.

But you and inefficiencies are only part of the potential benefit for these centers require some capital investment. They are designed to increase throughput and capital efficiency of our existing network, which should reduce the need for us to invest capital and upstream fulfillment center.

Net net our expectation is that investing and sortation centers will be a more capital efficient way to add capacity and we'll be assessing that potential through the task.

Before I move on from this topic I should quickly acknowledge there are a number of other important considerations regarding capacity beyond.

And overall capacity within each store, we need to ensure we of allocated at appropriate space to fulfill both our conventional store sales and our entire suite of store for Phil digital sales.

There are a number of ways, we account for this and our plan.

First we continue to find ways to optimize space within our stores, including options to free up front end space to accommodate growth and pick up and drive up and back room space to accommodate peak demand for our ship from store capability.

We're planning for this expanded capacity and our new stores and Remodels and we've developed a robust processes across the rest of the chain to free up space outside of a full remodels.

Second within each market, we are at the bulk of our ship from store orders to lower volume stores, allowing the highest volume stores devote most of their capacity to conventional sales.

And third we have developed tools and processes to create temporary peak capacity and both the front end and the back room.

Which allows us to handle the fourth quarter surge in both same day and ship from store volume without building a permanent solution that we wouldn't need for the rest of the year.

We've already deployed this additional temporary capacity across the chain in advance of this year's holiday peak, which.

Which we expect will be far larger than anything we've seen in the past.

The other consideration and planning for future capacity is our upstream supply chain, which handles the bulk of the product we receive from vendors and then relative to the stores across the country.

Even going into this year, we told you that we would need to be adding to our upstream capacity to accommodate future volume.

And with this year's unprecedented growth upstream capacity has become an even more important aspect of our plan.

So as I've said before I hope these metrics and our demonstrated ability to grow well beyond expectations. This year can help to address any of your concerns that we're going to run out of capacity.

But in the meantime, I want to cover our plans for the fourth quarter peak.

The team is in place and ready and most stores will be busy with our promotions and operational plans are designed to minimize crowding two of our guests shop safely.

Digital penetration always peaks in the fourth quarter and this year, our store centric fulfillment model is well positioned to handle and unprecedented amount of digital volume and.

And while all of our digital options, we'll likely see huge volume, we're really excited about our capacity to satisfy guest demand through our same day service.

For running the fourth quarter with double the number of drive of patients compared with a year ago and as Brian mentioned, we've made technology changes to make it completely contact with.

We're also entering the fourth quarter with more than 1600 stores able to fulfill fresh refrigerated and frozen items for a pickup and drive up services, making shopping for holiday dinners incredibly easy.

Among guests who been shopping this enhanced assortment using drive up we've seen half of the orders picked up within two hours and two thirds within for hours.

Demonstrating how guests are using this service can be at least serve and urgent need.

And finally, as we plan for seasonal hiring this year, we prioritize additional hours for our existing team members per se and then at a seasonal help provide the necessary capacity.

And training our teams to ensure we could accommodate peak digital fulfillment needs. We rolled out of plan to ensure that at least 50% of each store team is cross train and able to support fulfillment this year.

So like Brian I want to close with a simple and sincere. Thank you to the entire team Bob.

For peak is still ahead of US you've already made this a year to remember and I can't wait to see what we can do together to deliver for our guests throughout this holiday season.

With that I'll turn the call over to Michael will provide more detail on our third quarter financial performance and provide his initial thoughts as we plan for next year Michael.

Thanks, John.

Similar to each of our everyday lives since the onset of the current of Iris hardly anything and our PML has felt the same as before.

But a few factors are most important and understanding our business results so far the share.

First off for the headwind of which there have been several including merchandising mix digital fulfillment costs and an avalanche of first quarter apparel Mark down.

In addition, we've invested nearly of billion dollars and additional pay and benefits for our team along with safety measures to protect both our team and our debt.

Yet and the face of those pressures our business has delivered outstanding profit.

And while there are various places on the piano, where you can see the favorability they all tie back to the $10 billion of incremental sales that John mentioned earlier.

On the expense line. This growth has resulted in an extraordinary amount of leverage which has more than offset the pressure from additional costs.

In addition, this year's unusually strong growth has resulted in an exceptionally low markdown rate as I'll discuss in more detail and a few minutes.

When you pull back from the details it's clear that our business has been able to deliver both incredible topline growth and strong bottom line results.

This is a hallmark of the durable model we've been building over the last few years for.

Our third quarter comparable sales increase of 20.7% reflects a continued pattern of trip consolidation by our debt as our average transaction size grew by more than 15% on top of very healthy traffic growth of 4.5%.

Total sales grew 21.3% about 60 basis points faster due to sales and new and non mature stores.

On the gross margin line, we recorded a rate increase of about 80 basis points and the third quarter driven by the net impact of three separate factors.

The first is the benefit of our merchandising efforts, which contributed well over two percentage points to our gross margin rate in the quarter.

While there are many individual factors within this larger bucket for most notable was on the Mark down line as we saw exceptionally low promotional and clearance markdown rate.

On the promotional markdown line, we've seen a year over year benefit since the pandemic began and the reason of simple.

And unit volume and commodity categories is so high that production of struggling to keep up with demand. It makes sense to stick with our low everyday prices and reduced the number of stock up and other volume driving promotions, which will only increase the number of out of stocks faced by our guests.

On the clearance markdown line, you see even more favorability and the reason is somewhat different.

As demand for our non commodity categories has stayed persistently higher than expected we've sold a higher than average mix of our units at regular price with fewer than expected unit sold on clearance discounts at the end of the season.

Even more notable favorability on the clearance line has been the primary driver of our overall mark down favorability on a year to date basis. Despite the exceptionally high apparel Mark Downs, we recorded in the first quarter.

Offsetting the benefit of our merchandising effort there were two distinct headwinds to gross margin in the third quarter.

The first was from digital fulfillment and supply chain costs, which drove about a 110 basis points of pressure driven by rapid growth and digital fulfillment along with incremental team number pay benefit and safety costs for our supply chain team members and.

The other gross margin headwind came from category sales mix, which was worth about 60 basis points of pressure as lower margin categories grew faster than higher margin categories during the quarter.

On the SGN expense line, we recorded about 180 basis points of favorability in the third quarter.

As I mentioned earlier the favorability on this line reflects exceptionally strong cost leverage due to sales growth of more than 20%.

This benefit was so strong it was able to offset about $300 million of incremental investment and team number pay and benefits along with safety measures to protect our team and our cash.

On the DNA line dollars were down about 6% from a year ago worth about 70 basis points of rate improvement as we continue to annualize higher levels of accelerated depreciation on last year's larger remodel program.

Altogether, the business delivered an exceptionally high operating margin rate of 8.5%.

More than three percentage points higher than last year.

On a dollar basis operating income grew more than $900 million for more than 90 per cent compared with last year.

On the interest expense line, we recognized a $512 million loss on debt extinguishment related to a debt tender offer we executed and October.

In light of our higher profitability income taxes grew by about $90 million compared with last year.

On the bottom line. Despite the loss on debt extinguishment, which was equivalent to 75 cents of pressure third quarter GAAP EPS from continuing operations established a new record high of $2.01, representing an increase of 46% compared with one dollar and 37 cents last year and.

Adjusted EPS, which excluded the debt extinguishment losses, and a couple of other small factors in both years also established a new record high of $2.79 more than 100% higher than $1.36 cents last year.

Our business continues to generate very strong cash flow specifically through the first three quarters of the year. Our operations have delivered just over $7 billion of cash, which is nearly $3 billion more than a year ago.

Obviously, our profit performance as an important factor in this and great. But we also continue to benefit from unusually high payables leverage which is running well over 100%.

Consistent with my comments last quarter and despite the inventory growth John mentioned earlier, we would have chosen to have less cash at the end of the quarter and more inventory if that option had been available.

In light of the continued strength of our cash generation and resulting cash position on our balance sheet for treasury team recently elected to take a couple of action.

The first was the execution of a debt tender offer and October and which we invested $2.3 billion of cash to retire at $1.8 billion of high coupon long term debt.

This transaction created significant economic value and it will significantly reduce future interest costs.

In addition at allowed us to deploy the bulk of the extra cash we added in the first quarter when like many other well capitalized companies, we chose to take on additional liquidity insurance at a time of extreme uncertainty following the offset of the pandemic.

The other decision was made earlier this month when we terminated a supplementary 364 day credit facility, which was also added during the period of extremely high and certainty during the first quarter.

Beyond those actions, we also announced today that we have lifted the share repurchase suspension that we initially announced in the first quarter.

We don't intend to engage in any repurchases before the end of the holiday season, but under appropriate conditions, we would look to re initiate repurchases and 2021.

As a reminder, we currently have $4.5 billion of remaining capacity under the repurchase program approved by our board of directors in September of 2019.

As always the timing and quantity of repurchase activity will be governed by our decades long capital deployment goals.

We first look to fully invest and projects that meet our strategic and financial criteria.

Second we support our dividend and look to build on our nearly 50 year record of annual increases and our dividend per share.

And finally, we deploy any excess cash beyond the first two uses to repurchase our shares within the limits of our middle a credit ratings.

These capital priorities have served us well for decades and of played a critical role and supporting both strong operations and a strong balance sheet overtime.

In terms of capital deployment, we made capital investments of about $600 million and the third quarter, bringing our total for the year to just over $2 billion.

We continue to expect full year, Capex and the $2.5 billion of $3 billion range below our original expectation of about $3.5 billion, driven primarily by the reduction and remodel activity. Following the onset of COVID-19.

We paid dividends of $340 million and the third quarter, reflecting a 3% increase and the dividend per share partially offset by a decline and share count and of course, we didn't repurchase any shares and the third quarter in light of the suspension I mentioned earlier.

Turning now to our after tax return on invested capital our business delivered an extraordinarily high 19.9% and the trailing 12 months through the third quarter up and nearly five percentage points from 15% a year ago.

While our longer term plans of focused on delivering higher after tax ROI see overtime the acceleration over the last two quarters has been well beyond anything we would have expected.

And given that our inventories have been consistently lower than we'd prefer we gladly would have traded some cash for more inventory over the last two quarters, even though that would have driven this metric somewhat lower.

So now before I close I want to comment a little bit about our outlook, while we stopped providing financial guidance back in the first quarter I want to outline a number of important considerations as we move into the holiday season, and the fourth quarter overall.

The first is the continued headwinds facing the consumer and the economy and light of uncertainty around the path of the pandemic and continued elevated levels of unemployment.

Offsetting this pressure beginning with the onset of the pandemic there has been a significant change and the mix of consumer spending as a meaningful portion has shifted away from travel and multiple forms of out of home entertainment and into many of the categories. We sell.

We also continued to benefit from trip consolidation as consumers have increasingly relied on our stores and digital services to satisfy a wide variety of their wants and needs in a single trip.

Beyond these macro trends there are a number of more specific considerations as we enter the holiday.

The first of the expected change and the category mix of our fourth quarter business as typically both our electronics and toy categories and generate half their annual sales and the fourth quarter.

Given that both of these categories have seen dramatically stronger sales and still tend to make began its more difficult unusual to predict how the pattern will play out in the fourth quarter.

Similarly, the digital mix of our sales and important factor and our overall profitability typically reaches a seasonal peak in the fourth quarter.

This year, it's difficult to predict how high our digital mix will become given that we've already seen dramatically higher levels of digital penetration all year.

So the natural question is once you quantify all the potential headwinds and Tailwinds, you've just outlined what's your fourth quarter forecast.

Well I think that's a great question. The reality is that none of us can accurately predict the future as all of us are facing a much higher level of uncertainty compared with a normal year.

That's the reason why we've suspended financial guidance.

But that doesn't mean, we can't affect the outcome.

As I've mentioned before we continue to prioritize flexibility as we plan our business and focus on agility and our operations that way when the unexpected happens our team can respond quickly and effectively as you've seen so far this year.

Looking ahead to next year, the Crystal ball Doesnt get any clearer not only as of uncertain. When the current of virus will be fully behind us. It's also unclear how the consumer will behave and post Cove at World.

That creates uncertainty about the path of multiple categories as you consider how the mix of consumer spending will evolve and what the competitive landscape will look like.

In adapting to that new world will need to understand what that will mean for our business and how the financial metrics that have been dramatically change this year will settle down overtime and.

And today, while we can't answer these questions any more accurately than you can it's clear that flexibility and agility, we will continue to be vitally important.

So while specific metrics will continue to be difficult to predict we continue to have a high degree of confidence and our business and our ability to outperform that.

That's because based on the hard work of our team over the last few years, we now have a business model of its demonstrated its ability to deliver market share growth and profitability across a range of environments. That's been far wider than any of us would have expected.

And importantly, and a time, where virtually nothing has stayed consistent the one reliable through line across weeks and product categories has been consistent share gains throughout the year.

In addition, we've seen a massive increase and guest engagement to share as they ventured into new categories and services at target and.

And as I mentioned in our first quarter call Weve long known that engagement with guests at a time when their habits are changing is an incredibly important factor and deepening long term loyalty.

It's the reason we prioritize the back to college season, when many consumers are moving away from home for the first time.

It's also the reason, we're there for young couples when they get married and when they have children because of our relationship of young families has long been a foundational aspect of our strategy.

But most importantly, our team is a huge reason why we're confident in our future.

Weve long told you is that we have the best team and retail and this year's experience as demonstrated why we feel that way.

Throughout the year. Our team has stayed optimistic they've taken care of each other they offered friendly service to our guests and they've successfully overcome a host of unforeseen challenges.

The longer I've been at target the more I've seen how our team is target secret sauce, and I want to express my sincere gratitude to all of them for everything and have accomplished so far this year.

With that I'll turn it back over to Brian for some final thoughts Brian.

Thank you.

I want to reinforce Michael is commentary on our connection to families, which is so fundamental to our strategy.

It's right at the center of our corporate purpose to help all families discover the joy of everyday life.

As we enter the holiday season at the end of a truly remarkable year, we're humbled and gratified at the number of families who turned at target to help them stay connected this year.

We've helped them to find everything they need for a birthday party, including the decor the food for the presence and a card we.

We created registries for couples getting married.

And for parents excited to celebrate the birth of a new child.

The of health, our guests to stay connected from a distance for.

The new mobile phone or tablet.

And we help them and joy the additional time, they're spending at home whether that was new to core office.

Office equipment toys video games, or even activewear now that it's become work appropriate and a world in which at all meetings or virtual.

Even though the holidays will be different this year, we know our guests still want to discover the joy and.

And connect with those closest to them so.

So our team is focused on helping to make that happen, while providing helpful and friendly service and a safe environment during the busiest time of the year.

So with that we'll move to Q and eight.

John Michael and I will be happy to take your questions.

Thank you we will now begin our question and answer session. If you would like to ask a question. Please press Star then one and my question and Cleveland prompted if you need to withdraw. Your question you may do so by pressing Star then Q1 of mom and every way for our first question.

Okay and our first question comes from Chris Horvers from JP Morgan. Your line is now open.

Thanks, Good morning, everybody. So I have a near term question and a long term question starting with the near term I guess Im curious what your thoughts are on how this holiday plays out what what's the mood of the consumers that you've seen as you head end holiday you've had some of venture ready that could.

Only test.

Where you're seeing strength and were not seeing strength. So how are you thinking about what's the outlook here for the holiday and and the timing and so forth.

Well, Chris Good morning, it's Brian and when I started out give everyone a sense for how we're viewing the holiday season, and we spent a lot of time talking to guys throughout the year and as it pertains to the holiday there are clearly telling at that they want to celebrate this holiday season, but they know it's going to be very different smaller gathering.

Those trips and we used to date will be postponed, but we certainly expect at the guests that we serve is going to look for ways to find out a little bit of joy during the holiday season. They reacted very positively to our view of promotional plan to start early and actually make those deals available throughout the holiday season.

We've heard very positive responses to closing on Thanksgiving day, and really minimizing those big traffic driving occasions that we've seen in the past. So we expect this to be a season is going to be very different. Unlike any other weve ever seen but we expect that get flow decorate their home and do we get under the tree.

And no fly and special ways for celebrate the holiday season, and the alternative target and our Multicategory portfolio and our suite of fulfillment services as a way to make that happen.

Understood and then on the long term so you've seen the likes of Levis Disney shop in shops, OLT last week today W.W.D. as an article that share now is coming to target. It's clear that level of fashion is on the rise at target there are plenty of well known brands at selling to likes of pennies.

And Kohl's and Macy's at now seem like a natural fit from under armour Chap. CK is this an act of strategy that you are pursuing on the apparel side, what's been the dialogue there and there is there any pushback that you've heard from these types of brands.

For us to be really clear and our focus will always be and I'm duration and making sure we balance at the right mix of our own Brian and select National brand partners and that will be open approach, we'll take for years at now so we're very excited about some of our new partnerships and work.

And now with Levi's and next year, and 2021, and welcoming open beauty to our stores and and target dot com, but we'll always be curators and buying the right mix for our guests between our own brand and I kind of national brands.

Understood and have a great holiday due.

Great. Thank you.

Thank you.

And our next question comes from Stephanie with skin from Jefferies. Your line is now open.

Thank you good morning, everyone I have a follow up question to expenses a question just on brand expansion, but I'm curious if we can look at the lens of your guests profile any insights into new to file guess, where they might be coming from and how those baskets may look relative to your historic average day. Thank.

Thank you.

Stephanie we talked about the number of new gas at of turned at target during the pandemic and as John and Michael and I referred to and our opening comments, we're seeing a guess shop multiple categories and take advantage of our of that multi category for oil Sundays for shopping our stores Sunday and you're taking advantage for same day.

So when and services and we expect it and continue so I would guess that are shopping our stores right. Now are taking advantage of for multiple categories that we sell their shopping and apparel and home they are coming into our lines and food and beverage, they're taking advantage of our beauty operating as well as household essential and of.

And at some day as we see them taking advantage of the investments we've made to create a sales shopping experience and store and other day, they're taking advantage of the ease and convenience of our same day fulfillment services.

Thank you.

Thank you for one moment for and next question.

And our next question comes from at where Kelly from Wells Fargo. Your line is now open.

Hi, guys good morning.

Your gross margin performance. This quarter was excellent obviously, but can you provide a bit more color just on the mark down situation. So you know of at 200 basis points for you mentioned was that all Mark Downs and how much of that was or was just less promos versus clearance.

And then how do we think about Q for you know as it relates to lead to these line items, that's obviously pretty hard for us to predict at this point I'm sure for you as well but.

Any color there with and it would be helpful.

Sure I can take that one.

And when you think about the drivers and Q3.

The north of 200 basis points of good news flow of bucket of levers within merchandising. The single biggest of those for certain was mark down efficient and we've seen continued efficiency on the promo mark down throughout the year, and then clear and so.

And for that is up as a function of our sales are higher than expected sales and some of the seasonal categories and you guys well know a big part of our recipe for assortment and stores is bringing seasonal relevance and newness and Q3 changed over a lot of the store and into the fall and we had sold through a greater degree of that assortment of this year than we typically see and that provided.

Some real tailwind on the margin line in Q3.

When it comes to queue for once at Q4 is always its own animal. So we go of Q for bottom up with a clean sheet of paper and that's the way we've done at this year with admittedly a few more uncertainties and that equation and we might have typically but we feel really good about importantly inventories as position heading into the holiday season, and we expect it and.

And feel good about.

Aspects for the quarter looking forward and the strength of the multi category assortment and the strength of our fulfillment options ease and convenience of we'll be able to bring the gas stream.

For the fourth.

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And as Brian I'd, only add and really recognize the great work our merchant teams have done throughout the pandemic and certainly in the third quarter, making sure that we quickly adjusted assortment and make sure it's relevant for the guests in today's environment and I think you'll expect to see that in the fourth quarter and well, but our merchants of work very closely with our.

Vendor partners and make sure we're making the adjustments and we've got a relevant items in our stores and online that guests are looking for today and that's certainly been a big part of our success of throughout Twentytwenty.

Great. Thanks, guys.

Thank you thanks.

Thank you and my mind, if you would like to ask a question. Please press star one woman as they wait for the next question.

Thank you and our next question comes from Edward Yruma from Keybanc capital markets. Your line is now open.

Hey, good morning, guys. Thanks for taking the question you guys and.

Very successful at operating and opening stores and some of these more densely populated urban areas for it give us some sense as to how they performed maybe of some folks have left and cities and I guess, the flip side of it if real estate becomes more accessible as this and strategy here to lean into longer term. Thank you.

John you want to talk about flow formats at 2020, and some of the outlook that we have for Twentytwenty, one share hi, Ed Yeah, we remain really bullish on the small format stores and the opportunity in front of us there.

At many different types of trade area that we have opened small formats and over the years and by and large day are all performing well. There's a couple of what I would say are probably not quite where we'd like to be given the year. One is college campuses and those.

Those those are those stores that are heavily dependent on just students have lagged the company a little bit and and the other one is really around employment centers, not really wrong dense urban neighborhoods dense urban neighborhoods of continued to perform very very well employment centers, where people have been working for all of those of I've also lagged.

A little bit the rest of the chain, but as we look forward, we continue to see great opportunities across all of the different trade areas. We.

We believe college campuses were very bullish on those for the future and so you'll continue to see us look to open new small format and in many of the same areas that we could we open them in historically and you'll see us begin to accelerate a little bit next year and potentially 30 and 35, perhaps what we try and get to 40 stores a year.

As we continue to think about opening those smaller stores to address trade areas for guests are seeking to target experience, but that day can't get that store experience. So like I said, we remain very bullish on on that whole concept.

Thank you.

Thank you and our next question comes from Karen show at from Barclays. Your line is now and.

Hi, Thanks, very much and thanks for all of the color too and I am just wondering with respect and short term question and then longer term.

You gave a lot of color in terms of did things at your end and you're doing near term and also for January to the extent that you know January slows down, but I guess I'm wondering how you're thinking about at December from the perspective of there's been so much you know pull forward of shopping do you think there is some risk from end December perspective at the end.

Number of kind of stands all of a little bit and and how are you planning for that and then and just had one of their bigger picture.

Jerry and why don't I start and I think as we've looked at the holiday season, we expected the guest and start shopping earlier, but continue to shop throughout the holiday season right at the Christmas Eve. So we think it's going to be a for long shopping season, I think we're going to see very different shopping patterns. We don't expect to see those big spikes or end.

Black Friday, and non weekend, and I think it's going to be spread across all the holiday season, and we think this number is going to be a very important gifting season for our again, so we're watching it carefully and again, we'll put a premium on flexibility and agility and we work through the months of November and December but all indicate.

And as we talk to the consumer and cost of the guest is they're going to look to celebrate this holiday season, they're going to be focused on gifting and celebrating with their family and close friend and we expected to be in our stores and shopping online right till the very end of the holiday season.

Okay and then my second question. It's just for so we looked at 2021 I'm, obviously, there's some tough comparisons on the top line and maybe some tougher comparisons on the promotional from a lack of promotions. This year. How are you thinking about the environment and 2021 and as you know some retail or its hop to lapse some of that.

For the comparisons or you know is it a function of the fact that there are many retailers that you know.

I really can't be promotional because they don't have the bouncy and and capability to do that.

Sure and right now we're very focused on the first half of Twentytwenty one at.

And this is going to be of familiar theme and really taking some of the lessons learned from 2020, putting a premium on flexibility and agility because it is Michael and I, both and we unfortunately don't have that crystal ball as we looked at the future and and we're all looking for greater certainty, but we know we're going to go into the first half of 2020.

And facing the continued pandemic waiting for vaccines looking for greater clarity around the condition of the economy and unemployment and I think we're good at just got to make sure that we remain flexible and provide the assortment and the services and the safety that they guest is looking for from target, we certainly expect.

Next certain trends will continue we think gas will continue to consolidate and number of locations, where they shop, we think our and multi category for oil will continue to be very important as we serve the needs of families. We think at ease and indeed and convenient language safety well continue to be important and will continue to deliver great value.

So.

Michael talked about our continued focus on market share and the market share opportunities and are in front of us and I think we'll be very focused on continuing to build on top of the market share gains that we achieved and 2020 and further share opportunities and Twentytwenty one.

Great. Thank you.

Thank you. Thank you. Thank you and our next question comes from polished wafers and C.I.T.I. Your line is now open.

Oh, Hey, guys. A couple of quick ones just I'm curious if you can quantify what percent of your sales increase is being driven by new customers for its existing customers I'm curious about the store comp. If you can talk traffic versus ticket and then of Brian you mentioned I think the top quartile of your stores are doing.

And 500 Bucks a foot curious if you looked at that top core tile, let's say out of 2019 versus at the bottom quartile. However, our each of those performing this year and 2020. Thanks.

Yes.

One and I start and then I'll ask for both John and Michael and reminded per sentence, but I'll start with the recognition that on a day average, we see well over 30 million guest shopping our stores and as you've seen and our third quarter results, we see traffic and you need to grow at a rate of for.

5% basket expand over at 15% and certainly there are a mix of new guests the target but.

For the target guests and the family of the job of each and every week, our visiting us more frequently there's certainly shopping more categories, and that's creating greater trips either at or stores or Joo, Arthur film and channel and they are shopping a wider array of categories and take advantage of our multi kind of worth portfolio.

So we're seeing both growth with our existing debt and you do get to target and that target Dot com.

I can do any perspective on top tier versus lower tier of store performance.

Yeah, I'll take that really quickly as you'd imagine.

And just the magnitude of and number of stores of those tiers tend to move in units and so we.

We talked about you know the at the top tier, bringing up the bottom tier and move the same amount and.

And any individual store all of its own story, but but of course, though they can.

So I think the only thing I'd add is we look at our performance our of comps by geography, each and every week and we're seeing very consistent result, literally across the country.

On both coasts and the Heartland of America and in the southern market really consistent hop and growth performance. So it was certainly it's not one of Mercury markets that are driving and it's not our top tier stores for some of our lower volume stores, we're seeing a consistent lift across the entire fleet of stores and obviously very soon.

John growth and our digital channel.

Thank you guys. Good luck thanks.

Thank you.

Thank you and our next question comes from Paul Trussell from Deutsche Bank Your line.

Good morning, and very strong quarter of the question I'm not going to ask it to John on whether there's enough capacity.

Of course for the holiday season, I think at point is very well made there, but I do want to ask of Hello.

I do want to ask about the evolution of the same day service and just curious on what sort of learning and given the robust growth, how you're improving efficiency of your ability to add additional items of merchandising categories to be included in those stores.

Services.

Yeah, well first thank you God bless you for not asking about capacity I would tell you we are.

Our store teams and the shift team continue to execute our same day services at a very very high level.

And I think you hit on one of the things we've been very focused on this year, which is really assortment expansion.

For drive up and for pickup that has meant adding frozen and refrigerated and fresh foods. We are on a trajectory of we started the year to add it to about 300 stores, we obviously paused and early spring.

And then as things started to open up a really proud of the way our store teams responded and decided we could execute at across our properties team supply chain stores to get that and cost at 1600 of our stores today and so that's available and that's been a huge win for our guests.

We see the unit increases the number of units and the basket increase as guest start shopping that and it was the number one guest to satisfy or if I can come and get diapers and a couple of other things why can't I get a gallon of milk and eggs and so now we're able to fulfill that right along with that and hope you and drive up with order pickup and drive up we've got an adult beverage.

Another key category for us where again at just topped off the basket. So a real cash satisfy or end and we'll continue to work to at other categories at shipped the opportunity there was to get some more of our discretionary categories available for our guests and they use our same day service and so as Brian mentioned earlier and the call.

All we added children's and adult apparel for that right here before the holiday, we think that'll do very well. So the teams continue to execute continue to build efficiencies into what we're doing but importantly, I think the most important thing and they continue to ask the guess what it is they want and what we can fulfill for them and you'll see us continue to work.

Toward that and that will guide really how we continue to improve those services.

Operating and it wasn't able to pay off [laughter], Robert one more quick question.

Thank you I find of question comes from Robby Ohmes from Bank of America. Your line is now open.

Oh, Thanks for taking my question at first you know, Brian and team I just wanted to say crap. Congrats on the execution of your strategy. It's been playing remarkable my question I'm I'm, sorry, I'm going I'm going to ask to you. Brian you mentioned and shipped I was wondering if you could give us a little more and shipped and profitability and and.

Maybe gross outside at target, maybe a little more color on you know what ship is becoming and none of the second maybe short of question just on target plus your marketplace anything changing with your strategy. There that you can share with us given your momentum online. Thanks.

John you want to start with just and then we'll wrap up with target.

Yeah, we we continue to be really really pleased with the performance of shift and the execution of the team as we said shipped at target has grown at 280 per cent a this quarter $200 million of incremental sales of and its a key part of what we're going to do here in the fourth quarter, we think you'll see it throughout the fourth quarter really lean into our same day service.

Order pickup drive up and ship as a wasting and all the way to fulfill our guests need and and shift will be a big big part of that.

I think beyond that shift continues to experience very strong growth that continued at retailers are over 100 national and regional retailers. They added bed Bath and beyond this this quarter. In addition to a few others.

They doubled the number of shoppers since the spring and and our planning at another 100000 shoppers here for the for the fourth quarter. So we continue to see really strong growth and and we're very pleased for ships performance overall.

And and robbing on the target for our approach continues to be the same and we're very selectively curiosity and vendor partners I think we're at about a 175 right now we probably have now post of 400008 is available through target plot. So we'll continue to make sure we cure a very carefully and complement our store and on.

And assortment.

So with that I do want to thank everyone for joining us today I wish everyone, a safe and happy holiday season, we look forward to the day and we can all of that together and person, but thanks for joining and thanks for your support and have a safe and happy holiday season.

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Ladies and gentlemen, thank you for standing by.

Welcome.

For the target Corporation third quarter earnings release Conference call.

During the presentation, all participants will be any listen only mode. Afterwards, we will invite you to participate in a question and answer session at.

At the close of the prepared remarks, we will open the queue for the question and answer session at.

At that time, if you have a question you want needs of press Star one on your telephone as.

As a reminder of this conference is being recorded Wednesday November 18th 2020.

I would now like to turn the conference over to Mr., John the whole Bird Vice President Investor Relations. Please go ahead Sir.

Good morning, everyone and thank you for joining us on our third quarter 2020 earnings conference call and.

On the line with me today are Brian Cornell, Chairman and Chief Executive Officer, John Mulligan, Chief operating Officer, and Michael for the Alky Chief Financial Officer.

And a few moment, Brian John and Michael will provide their perspective on the third quarter and our priorities as we move into the holiday season.

Moving to remarks, well open the phone lines for a question and answer session.

This morning, we're joined on this conference call by investors and others, who are listening to our comments via webcast.

Following 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 and most important of which are described in our at SEC filings.

Also in 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 quarter and our focus going forward Brian.

Thanks, John and good morning, everyone.

Right moved to our third quarter results.

I want to acknowledge our team.

And an incredibly challenging environment. They have stayed focused on our debt.

Looked out for each other and bill.

The purpose and a clear set of priorities we've had in place for several years.

Making target and even more relevant and response of company for the millions of families. We serve every week.

The pandemic has presented new challenges for all of Us and our team has successfully navigated every one of them.

They've stayed laser focused on safety agility and reliability as.

As a theme of we adapted to abrupt changes and guest needs and shopping pattern.

They've handled supply constraints and essential categories, while chasing inventory and long lead time categories that are experiencing explosive growth.

They've been at Cagny, President and a friendly say store again.

Work rating normalcy at a time when hardly anything feels that way.

And.

Our team members at actually played an act of positive role in our communities journey and incredibly turbulent year.

Well the deepening level of trust, our gas, replacing and our team and our brand. We've continued at the very strong business results.

Third quarter sales grew nearly $4 billion over last year.

Bringing our year to date growth to more than $10 billion.

This unprecedented growth.

During the quarter end of year has been driven by meaningful share gains across every one of our core category.

As guests increasingly rely on target reliably and safely sort of their wants and needs.

Based on the cost leverage within like deeply higher sales.

Our business continues to deliver and that's the bottom line performance. Despite the outside investment, we've been making and our team safety and digital fulfillment.

Our third quarter adjusted EBITDA of $2.79 establish at another record high for the company.

And was up more than 100% from last year.

Third quarter of comparable sales increased 20.7 per cent.

Reflecting.

4.5 per cent rapid growth combined with an increase in average ticket of more than 15%.

Since the pandemic began in March we've experienced a meaningful acceleration and basket gross.

Both in stores and online as guest of consolidated their shopping at a much larger for it.

Across channels.

Our store comps grew nearly 10%.

For digital comp sales grew 155% contributing nearly 11 percentage points to the company comp.

Within digital we continue to see the strongest growth and our same day surface at pick up drive up and ship.

Which together grew more than 200% in the quarter.

These services are of that convenient reliable and contact with.

Which explains why they continue to generate very high levels of guest satisfaction.

Oh for financial reporting accounts. These same day orders and digital these services are entirely enabled by our stores just.

Specifically day.

And the orders are fulfilled by our store teams along with ship shoppers, who rely on store inventory and system to deliver to the front of our store our parking lots for yes front doors within a couple of hours of receding and order.

The non same day services.

Over half of our packages, we shipped to guess at home or also fulfill for more stores.

Brining speed work at our reducing shipping cost and our piano.

Altogether Betweens day to day services and packages shipped already at about 75 per cent of our third quarter of digital sales force.

All of my are sort of.

And of course, if you add that onto our conventional store sales of more than $18 billion you can see at more than 95% of our total third quarter sales were filled by our stores.

The stores just hub model is a foundational element of our strategic plan, we announced at the beginning of 2017.

Just over three years ago.

Our performance for the first three quarters of Twentytwenty, which includes digital sales growth of nearly $6.5 billion and of store sales increase of more than $3.5 billion isn't.

This is a direct result of our stores. This hub strategy combined with a tireless work of our team for bring it to life.

In terms of the cadence of our business throughout the quarter, we began with mid teen comp growth in August.

This reflected a slow start at the back to school season.

As many school districts across the country began their year end distance learning mode.

However sales trend.

And back to school back to college, and our overall business strength and in September I think comp growth in the mid 20% range for the month overall and.

October comp broke settle back to approximately 20% consistent with our accounts for the full quarter.

Across our core and merchandise categories.

Third quarter growth was strong for us and hardline.

Which non comp growth and the mid 30% range.

And hardline result for strongest and electronic which grew more than 50% driven by particular strength and computer software video games portable electronics and office of <unk>.

Within our style categories results were strongest and home, which saw comp growth in the mid 20% range.

At the strongest growth in the core and kitchen.

Comp sales and apparel grew by nearly 10%.

Led by results and intimate and sleepwear as well as men apparel.

Consistent with the second quarter, both are essential and beauty and food and beverage categories saw third quarter of comp growth and the high teens.

And essentially and beauty, we saw strength across the entire portfolio with a strong as a result and paper and debt.

Similarly, and food and beverage we saw broad based growth with particular strength and adult beverages and dry grocery.

Following our announcement of the second quarter of this was the first full quarter and with our starting wage with $15 for higher across the country up from $13 per year ago.

The attainment of this milestone was the culmination of a commitment we first announced in the fall of 2017, when our starting wage across the country was $10.

Our team has always been at key differentiator for our stores and our brand.

And it's $15 commitment was intended to attract reward and retain top talent.

What has long been the best team and retail.

Beyond our longer term goal for raise target starting wage.

This year, we've also focused on recognizing our teams outside efforts during these extraordinary times.

Typically we rewarded for separate recognition bonuses, so far and Twentytwenty most.

Most recently in October we awarded $200 to each of our frontline team members and support of our plant was that more of the $1 billion and our team for the year.

As we built our plans for the fourth quarter, our team focus first on flexibility and agility.

Knowing how volatile and unpredictable external environment continues to be.

We focus on leveraging target strength, including the emotional connection between our Bob.

Again and again.

And the convenience and speed of our stores and sub model.

We're focused on listening to our guests to understand whether it's for anything.

And they told US that safety is one of their top concern.

So on top of our goal to be the easiest place of shop, we're committed to being the safest place and shop as well.

In support of that goal, we've implemented a number of the technology improvement to make shopping at target for contact free.

These include and enhancement for self service lanes, which means guests no longer need to use the hand scanner that day with their wallet function and our app.

We made changes to drive up.

And eliminate the need for at team members and it gets phone when they deliver and order.

Weve rolled out a new capability and the target dotcom, allowing guests at check in advance and see whether we're currently metering trapping and their store and allow them to reserve of spot in line before leaving home.

In addition, we've altered our promotional cadence to avoid event that typically cost crowd and.

And we announced that will be closed on Thanksgiving and open at the regular time on Black Friday.

Rather than concentrating holiday deals around Thanksgiving and Black Friday.

We've spread our black Friday offers throughout the entire month of November.

Weekly promotions spread across different categories throughout the month.

And and the spirit of transparency and trust.

We have a shirt our gas that they see any of our black Friday items for a lower price later and the season will happily makeup of difference or extended price match policy.

And minimize lines, we've added more than 1000 mobile checkout devices across the chain allow our team members to help yes check out anywhere in the store.

We've also added thousands of gift item eligible for same day fulfillment.

And for entering the holiday season with more than double the number of drive of parking spaces and paired with a year ago.

In addition, we then at fresh refrigerated and frozen items for a pickup and drive of assortment and more than 1600 locations across the country, making.

Making this the first holiday season, and which guests from coast to coast and use these convenient services to pick up everything they need for a holiday meal.

We're also continuing to expand the number of our merchandise categories available for flagship store, but most recently, adding kids and adults apparel.

This change provides a new contactless option for gas and shop these categories.

And at them delivered their front doors and as little as an hour.

While many things will be different this year are against that told us that they still plan to celebrate the holiday and we know they'll be looking at target for some holiday imagine.

That's why we're so excited about our recently announced partnership with at Aaos Schwartz.

New for this holiday season target and and they all Schwartz at Robert It on an exclusive 70 DC Foy collection.

Many items priced under $20.

This collection will be available at target stores nationwide and target Dot com and the flagship at Aaos Schwartz store in New York City.

Beyond this unique collection. This holiday we for our biggest ever list of top toy, including more than 600 exclusive lineup.

Which will feature at an incredible value all season long.

And of course, we're focused on bringing targets brand promise of life by operating value and quality with hundreds of ordering and right at $3 $5 and $10.

On target Dot com more and more of our guests for shopping for the core of using debt.

And your space technology, which makes our digital shopping experience for inspiring than ever.

This feature allows guests to visualize what Christmas trees will look like and their home as they prepare to decorate and for the holiday.

Yes, you utilize this threed rendering feature our two times more likely to purchase the tree compared with an average digital gets.

And speaking with our guests we know that finding the right gift can be a source of strength during the holiday.

So this year and make it easier than ever for our guests a share of the joy, we've expanded our gifting assortment, including items for even a top of individual on their list.

With many items priced at $15 or less.

We are offering incredible value make it easier to celebrate the season with family and friends.

And while the holiday season is top of mind right now we shouldn't forget at the fourth quarter also includes the full month after the holiday.

We're planning to kick off the new year on a positive note for the focus on wellness and nutrition.

[music] exclusives and beauty and the introduction of seamless T. shirt.

And performance bottom.

Celebrate the one year anniversary of our new Activewear brands, all and motion.

And speaking of beauty, we couldn't be more excited about our new long term strategic partnership with Ulta beauty.

Which we announced last week.

Because it and bodies for style and frequency.

The beauty category is ideally suited to our strategy.

And it's and one of our strongest growing categories over the last few years.

This new partnership will help us to build on net debt, providing our guests access at dozens of new beauty brands nationwide.

With elevated service and.

And presentation and select sort of location.

We plan to open the first 100, Ulta beauty shop and shop later in 2021 with a potential open hundreds more and.

In years beyond.

So now before I close one.

I want to provide a brief update on our plans for target to 20.1 financial community meeting.

While no one can accurately predict the future of the current of buyers and the impact of potential vaccine we.

We've decided at hostess, meaning virtually and 2021.

We made this decision out of an abundance of caution and keeping with our focus on the safety of our team and our investors.

We look forward to hosting it again and person beginning in Twentytwenty two.

So now as I get ready to turn the call over to John I want to come back where I started and.

Acknowledge our amazing team.

When I arrived at target a little more than six years ago I already knew that target is an academy company.

Place and attract and develop the level of talent, that's the envy of other company.

That was already true before I arrived and I couldn't be more proud of the team's investments we've made and recent years.

Investments and tendons is meant target physician as an inclusive of home for top talent.

What I didn't appreciate and why became and Merced with this team is the warrants at the culture and the teams and their desire for target of play of positive role in the world.

This desire off and shows through and our marketing and our Assortments and you could certainly see it and our stores.

But for those of US two of the privilege of working with every part of this team we see it every day behind the scenes.

And then when no one else is looking.

So I'll close with a simple thank you to this team for.

For your passion to make target and welcoming place for all families and.

And a great place to work for everyone on the team.

With that I'll turn the call over to John for an update on our operations and plans for the holiday season John.

Thanks, Brian.

When you pull back and consider what's happened in our business. This year, it's clear that a couple of defining themes of of merged the first is flexibility you seem at play out in our merchandising assortment, enabling us to satisfy our guests rapidly changing wants and needs throughout the year. You've also seen at play out and our operations as our stores is hub model allowed our team to pivot.

And lastly, when gas move their shopping between stores and our digital channel.

This flexibility will continue to serve us well and the fourth quarter and beyond given that we continue to face and elevated level of uncertainty across multiple aspects of our business.

Our third quarter results continue to demonstrate the power of our same day services to deliver speed and convenience for our guests while driving them press of amounts of the company's gross.

And the third quarter, our same day services grew well over 200 per cent compared with last year, adding more than $1 billion of incremental sales.

$700 million of this growth was from our drive up service alone, which increased more than 500 per cent compared with last year and.

Basically this growth was not at the expense of in store pickup which increased more than 50%.

And we'll ship for me the smallest of our same day services continues to grow rapidly as target sales and ship increased nearly 280% and the quarter accounting for more than $200 million of incremental sales and.

One of pause and give a shout out to our team and ship and congratulate them on an incredible year of growth and expansion, which has included a doubling of their shopper base.

Altogether, our third quarter digital sales grew more than $2 billion compared with last year.

For perspective $2 billion is more than our company's total digital sales for the entire year end 2014.

Somehow I think I should pause for a second and let that thinking I.

But instead, maybe I'll pile on by making the same point, a different way and point out that between the first three quarters of 2014 and the same period. This year the compound annual growth rate of our digital sales was 45% over that six year period.

Another area and what you've seen amazing flexibility is and the management of our inventory.

We've adapted to huge swings and the pace of sales among individual categories and work to support overall growth that's been well above expectations.

As I mentioned last quarter, while we continue to make progress we seem to be persistent inventories shortfalls for a couple of distinct reasons.

First and several of our long lead categories like electronics home and apparel. Our team has been playing catch up given that we experienced and unexpected sharp and sustained explosion and demand for these categories.

The team has done a great job of chasing and expediting inventories to support these categories, which enabled the unusually strong comps that Brian outlined earlier even.

Even more encouraging we ended the third quarter and a much better position and where we started and we expect to see additional recovery in the fourth quarter.

The other driver of inventories shortfalls, and 2020 is related to industry dynamics.

At the producers of cleaning and paper products have been working to ramp up production and the face of medically higher demand across all of U.S. retail.

I believe we're also making progress and these categories.

For not yet back the free covert levels weeks of supply improved during the quarter and we expect make continued progress and the fourth quarter overall.

Overall, our progress is reflected in the aggregate numbers.

Specifically, we started the third quarter with inventory down about 3% compared with year ago and.

Ended more than 11% higher than a year ago, after a quarter and which our sales grew more than 20%.

It is remarkable progress and puts us in a much better position as we move into the fourth quarter.

I also want to highlight the flexibility of our properties team. We just opened 18, new stores and October for the year. Our team successfully opened 30, new stores of which 29 were small format, making 2020, the biggest year of small format openings ever.

Any year setting records will be notable but any year and which coded caused us to delay our new store construction, it's been amazing to watch how quickly our team was able to restart such a large number of project and successfully bring them to completion in advance of the holiday season.

The non flexibility and other key theme this year at capacity as we consider the physical resources will need to support our business over time.

As Brian mentioned, we've already grown our sales by more than $10 billion for the first three quarters of 2020 and.

And again for context that $10 billion of incremental sales as more than our total sales growth between 2011, and 2019 and eight year period.

Right well of wondered whether compressing eight years of growth and to less than a year was even possible, but clearly the capacity was there and walk.

Capacity is a function of replenishment as well as fulfillment. The question, we hear most often and whether we'll continue to have enough capacity for our digital fulfillment.

And in that regard the primary factor is our strategic decision and placed our stores at the center of fulfillment.

At relying on the same asset to fulfill both our conventional and digital sales.

The key to fulfillment capacity is the store asset itself.

And the speed with which we can move inventory through it.

You might refer to that as our ability to increase turnover, but sometimes you'll hear engineers like Michael and me refer to that metric of throughput.

Just a sounds mark.

As we said in the past sales per foot because of useful proxy for throughput. So let's consider how that has progressed. So far this year as a baseline for the full year and 2019 average sales per foot at target for about $320.

So far this year that metric has grown at about 19% compared with last year.

So just as a thought exercise if you assumed we were going to grow our sales productivity at that same pace for the full year, we'd end 2020 at about $380 per foot.

Need of cost quickly and reinforce I'm.

Im using a hypothetical 19% number im not providing guidance for the quarter, just giving us something to anchor on.

So the critical question is after growing sales per foot for the lower end of the $300 range and so the upper three hundreds three of any more capacity and our stores.

The answer is certainly yes.

Last year, and our second quarter call I mentioned that our top quartile of stores average well over $400 of foot back in 2018 and that number has grown to nearly $500. Since then.

And we can average nearly $500 of foot on nearly 500 of our most productive stores I think it's clear we have capacity to grow the chain average well beyond where it is today and.

Net capacity would be there even if we kept doing what we're doing today, but of course, we continue to find ways to improve throughput.

And one of our newest options and deploy sortation centers and markets, where delivery density is high and.

Better assess this concept we recently opened our first Sortation center here in Minneapolis.

First of all our teams to test learn and assessed and ultimate potential before determining whether to rollout the concept for that.

The business case for our sortation centers straightforward by moving the sorting and stage and process out of the stores. It frees up at groups space, enabling additional throughput.

Stores can simply focus on pack and the orders, which are then transferred multiple times per day to the Sortation center, where they can be stored at this stage at a larger scale driving per unit of efficiencies and potentially reducing the number of split shipments.

In addition, we can reduce per unit shipping costs by deploying technology for Grand Junction, which helps us to allocate packages across different providers and applying recently acquired technology from Deliv debt.

Help us to optimize for station and injection into those provider networks.

But you and inefficiencies are only part of the potential benefit while these tenders require some capital investment. They are designed to increase throughput and capital efficiency of our existing network, which should reduce the need for us to invest capital and upstream fulfillment center.

Net net our expectation is that investing and sortation centers will be at more capital efficient way to at capacity and we.

We'll be assessing that potential through the test.

Before I move on from this topic I should quickly acknowledge there are a number of other important considerations regarding capacity.

Yeah, and overall capacity within each store, we need to ensure we of allocated at appropriate space to fulfill both our conventional store sales and our entire suite of store fulfill digital sales.

For a number ways, we account for this and our plan for.

First we continue to find ways to optimize space within our stores, including options to free up front end space to accommodate growth and pickup and driver and back room space to accommodate peak demand for our ship from store capability.

We're planning for this expanded capacity and our new stores and Remodels and we've developed a robust processes across the rest of the chain to free up space outside of a full remodel.

Second within each market, we wrote the bulk of our ship from store orders to lower volume stores, allowing the highest volume stores to devote most of their capacity to conventional sales.

And third we have developed tools and processes to create temporary peak capacity and both the front end and the back room.

This allows us to handle the fourth quarter surge and both same day and ship from store volume without building of permanent solution that we wouldn't need for the rest of the year.

We've already deployed this additional temporary capacity across the chain in advance of this year's holiday peak, which we expect will be far larger than anything we've seen in the past.

The other consideration and planning for future capacity is our upstream supply chain, which handles the bulk of the product we receive from vendors and then relative to the stores across the country.

Even going into this year, we told you that we would need to be adding to our upstream capacity to accommodate future volumes.

And with this year's unprecedented growth upstream capacity has become an even more important aspect of our plan.

So as I've said before I hope these metrics and our demonstrated ability to grow well beyond expectations. This year.

At help to address any of your concerns that we're going to run out of capacity, but.

But in the meantime, I want to cover our plans for the fourth quarter peak.

The team is in place and ready and.

At stores will be busy with our promotions and operational plans are designed to minimize crowding two of our guests shop.

Digital penetration always peaks and the fourth quarter and this year, our store centric fulfillment model is well positioned to handle and unprecedented amount of digital volume.

And while all of our digital options, we'll likely see huge volume, we're really excited about our capacity to satisfy guest demand through our same day services.

We're entering the fourth quarter with double the number of drive of patients compared with a year ago and as Brian mentioned, we've made technology changes to make it completely contact with.

We're also entering the fourth quarter with more than 1600 stores able to fulfill fresh refrigerated and frozen items for a pickup and drive up services.

Making shopping for holiday dinners incredibly easy.

Among guests who have been shopping this enhanced assortment using drive up we've seen half of the orders picked up within two hours and two thirds within for hours.

Demonstrating how guests are using this service conveniently serve and urgent need.

And finally, as we plan for seasonal hiring this year, we prioritize additional hours for our existing team members first and then at a seasonal help provide the necessary capacity.

And training our teams to ensure we could accommodate peak digital fulfillment needs. We rolled out of plan to ensure that at least 50% of each stores team is cross trained and able to support fulfillment this year.

So like Brian I want to close with a simple and sincere. Thank you for the entire team Bob.

Peak and still ahead of US you've already made this year to remember and I can't wait to see what we can do together to deliver for our guests throughout this holiday season.

With that I will turn the call over to Michael will provide more detail on our third quarter financial performance and provide his initial thoughts as we plan for next year.

Michael.

Thanks, John.

In order to each of our everyday lives since the onset of the current of Iris hardly anything and RPL has felt the same as before.

But a few factors are most important and understanding of business results. So far this year.

First off for the headwind of which there have been several including merchandising mix and digital fulfillment costs and an avalanche of first quarter apparel markdown.

In addition, we've invested nearly of billion dollars and additional pay and benefits for our team along with safety measures to protect both our team and our debt.

Yet in the face of those pressures our business has delivered outstanding profit.

And while there are various places on the piano, where you can see the favorability.

All tie back to the $10 billion of incremental sales that John mentioned earlier.

On the expense line. This growth has resulted in an extraordinary amount of leverage which is more than offset the pressure from additional cost.

In addition, this year's unusually strong growth has resulted in at substantially lower markdown rate as I'll discuss in more detail and a few minutes.

When you pull back from the detail, it's clear that our business has been able to deliver both incredible topline growth and strong bottom line results.

This is a hallmark of the durable model we've been building over the last few years.

Third quarter comparable sales increase of 20.7% reflects a continued pattern of trip consolidation by our debt as our average transaction size grew by more than 15% on top of very healthy traffic growth of 4.5%.

Total sales grew 21.3% about 60 basis points faster due to sales and new and non mature stores.

On the gross margin line, we recorded at a rate increase of about 80 basis points in the third quarter driven by the net impact of three separate factors.

The first is the benefit of our merchandising effort, which contributed well over two percentage points to our gross margin rate in the quarter.

While there are many individual factors within this larger bucket for most notable was on the Mark down line as we saw exceptionally low promotional and clearance markdown rate.

On the promotional markdown line, we've seen a year over year benefit since the pandemic began and the reason of simple.

When unit volume and commodity categories is so high that production of struggling to keep up with demand. It makes sense to stick with our low everyday prices and reduced the number of stock up and other volume driving promotions, which would only increase the number of out of stocks faced by our gross.

On the clearance markdown line, you've seen even more favorability and the reason is somewhat different as.

As demand for our non commodity categories of stayed persistently higher than expected we've sold a higher than average mix of our units at regular price with fewer than expected unit sold on clearance discounts at the end of the season.

Even more notable favorability on the clearance line has been the primary driver of our overall Mark Downs favorability on a year to date basis. Despite the exceptionally high apparel Mark Downs, we recorded in the first quarter.

Offsetting the benefit of our merchandising effort there were two distinct headwinds to gross margin in the third quarter the.

The first was from digital fulfillment and supply chain costs, which drove about a 110 basis points of pressure driven by rapid growth and digital fulfillment along with incremental team number pay benefit and safety costs for our supply chain team members.

The other gross margin headwind came from category sales mix, which was worth about 60 basis points of pressure as lower margin categories grew faster than higher margin categories during the quarter.

On the SGN expense line, we recorded about 180 basis points of favorability in the third quarter as.

As I mentioned earlier the favorability on this line reflects exceptionally strong cost leverage due to sales growth of more than 20%.

This benefit was so strong it was able to offset about $300 million incremental investments and team number pay and benefits along with safety measures to protect our team and our gas.

On the DNA line dollars were down about 6% from a year ago with about 70 basis points of rate improvement as we continue to annualize higher levels of accelerated depreciation on last year's larger remodel program.

Altogether the business delivered an exceptionally high operating margin rate of 8.5% more than three percentage points higher than last year.

On a dollar basis operating income grew more than $900 million for more than 90 per cent compared with last year.

On the interest expense line, we recognized 512 million dollar loss on debt extinguishment related to a debt tender offer we executed in October.

In light of our higher profitability income taxes grew by about $90 million compared with last year.

On the bottom line. Despite the loss on debt extinguishment, which was equivalent to 75 cents of pressure third quarter GAAP EPS from continuing operations established a new record high of $2.01, representing an increase of 46% compared with $1.37 cents last year and.

Adjusted EPS, which excluded the debt extinguishment losses, and a couple of other small factors in both years also established a new record high of $2 and 79 of them more than 100% higher than $1.36 cents last year.

Our business continues to generate very strong cash flow specifically through the first three quarters of the year. Our operations have delivered just over $7 billion of cash, which is nearly $3 billion more than a year ago.

Obviously, our profit performance as an important factor and this and great. But we also continued to benefit from unusually high payables leverage which is running well over 100%.

Consistent with my comments last quarter and despite the inventory gross John mentioned earlier, we would have chosen to have less cash at the end of the quarter and more inventory if that option had been available.

In light of the continued strength of our cash generation and resulting cash position on our balance sheet. Our treasury team recently elected to take a couple of action.

The first was the execution of a debt tender offer and October in which we invested $2.3 billion of cash to retire $1.8 billion of high coupon long term debt.

This transaction created significant economic value and it will significantly reduce future interest costs.

In addition, and allowed us to deploy the bulk of the extra cash we added in the first quarter when like many other well capitalized companies, we chose to take on additional liquidity insurance at a time of extreme uncertainty following the offset of the pandemic.

The other decision was made earlier this month when we terminated a supplementary 364 day credit facility, which was also added during the period of extremely high uncertainty during the first quarter.

Beyond those actions, we also announced today that we have lifted the share repurchase suspension that we initially announced in the first quarter.

We don't intend is to engage and any repurchases before the end of the holiday season, but under appropriate conditions, we would look to re initiate repurchases and 2021.

As a reminder, we currently have $4.5 billion of remaining capacity under the repurchase program approved by our board of directors and September of 2019.

As always the timing and quantity of repurchase activity will be governed by our decade long capital deployment goals.

We first look at a fully invest and projects that meet our strategic and financial criteria.

Second we support our dividend and look to build on our nearly 50 year record of annual increases and our dividend per share.

And finally, we deploy any excess cash beyond the first two uses to repurchase our shares within the limits of our middle a credit ratings.

These capital priorities have served us well for decades and of played a critical role and supporting both strong operations and a strong balance sheet overtime.

In terms of capital deployment, we made capital investments of about $600 million and the third quarter, bringing our total for the year to just over $2 billion. We continue to expect full year Capex and the $2.5 billion of $3 billion range below our original expectation of about $3.5 billion driven primarily by the risk.

Suction and remodel activity following the onset of COVID-19.

We paid dividends of $340 million and the third quarter, reflecting a 3% increase and the dividend per share partially offset by a decline and share count and of course, we didnt repurchase any shares and the third quarter in light of the suspension I mentioned earlier.

Turning now to our after tax return on invested capital of our business delivered an extraordinarily high 19.9% and the trailing 12 months through the third quarter of nearly five percentage points from 15% a year ago.

While our longer term plans are focused on delivering higher after tax ROI see overtime the acceleration over the last two quarters has been well beyond anything we would have expected.

And given that our inventories have been consistently lower than we'd prefer we gladly would have traded some cash for more inventory over the last two quarters, even though that would have driven this metric somewhat lower.

So now before I close I want to comment a little bit about our outlook, while we stopped providing financial guidance back in the first quarter I want to outline a number of important considerations as we move into the holiday season, and the fourth quarter overall.

The first is the continued headwinds facing the consumer and the economy and light of uncertainty around the path of the pandemic and continued elevated levels of unemployment.

Offsetting this pressure beginning with the onset of the pandemic there has been a significant change and the mix of consumer spending as a meaningful portion has shifted away from travel and multiple forms of out of home entertainment and into many of the categories. We sell.

We also continued to benefit from trip consolidation as consumers have increasingly relied on our stores and digital services to satisfy a wide variety of their wants and needs and a single trip.

Beyond these macro trends there are number of more specific considerations as we enter the holiday.

The first of the expected change and the category mix of our fourth quarter business as typically both our electronics and toy categories and generate half their annual sales and the fourth quarter.

Given that both of these categories have seen dramatically stronger sales and for pandemic began its more difficult than usual to predict how the pattern will play out in the fourth quarter.

Similarly, the digital mix of our sales and important factor and our overall profitability typically reaches of seasonal peak in the fourth quarter.

This year, it's difficult to predict how high our digital mix will become given that we've already seen dramatically higher levels of digital penetration all year.

So the natural question is once you quantify all of the potential headwinds and Tailwinds, you've just outlined what's your fourth quarter forecast.

Well I think Thats a great question. The reality is that none of us can accurately predict the future of all of us are facing a much higher level of uncertainty compared with and normal year.

That's the reason why we've suspended financial guidance.

But that doesn't mean, we can't affect the outcome as.

As I have mentioned before we continue to prioritize flexibility as we plan our business and focus on agility and our operations that way when the unexpected happens our team can respond quickly and effectively as you've seen so far this year.

Looking ahead of next year, the Crystal ball Doesnt get any clearer not only as at uncertain. When the current virus will be fully behind us. It's also unclear how the consumer will behave and post Cove at World.

That creates uncertainty about the path of multiple categories as you consider how the mix of consumer spending will evolve and what the competitive landscape will look like.

In adapting to that new world will need to understand what that will mean for our business and how the financial metrics that have been dramatically change this year will settle down overtime and.

And today, while we can't answer these questions any more accurately than you can it's clear that flexibility and agility will continue to be vitally important.

So while specific metrics will continue to be difficult to predict we continue to have a high degree of confidence in our business and our ability to outperform that.

That's because based on the hard work of our team over the last few years. We now have a business model that is demonstrated its ability to deliver market share growth and profitability across a range of environments. That's been far wider than any of us would have expected.

And importantly, and a time, where virtually nothing has stayed consistent the one reliable through line across weeks and product categories has been consistent share gains throughout the year.

In addition, we have seen a massive increase and guest engagement to share as they ventured into new categories and services at target and.

And as I mentioned in our first quarter call Weve long known that engagement with guest at a time when their habits are changing is an incredibly important factor and deepening long term loyalty.

It's the reason we prioritize the back to college season, when many consumers are moving away from home for the first time.

It's also the reason, we're there for young couples when they get married and when they have children because of our relationship with young families has long been a foundational aspect of our strategy.

But most importantly, our team is a huge reason why we're confident in our future.

Weve long told you that we have the best team and retail and this year's experience has demonstrated why we feel that way.

Throughout the year. Our team has stayed optimistic they of taking care of each other they've offered friendly service to our guests and they've successfully overcome a host of unforeseen challenges.

The longer I've been at target the more I've seen how our team is target secret sauce, and I want to express my sincere gratitude to all of them for everything of accomplished so far this year.

With that I will turn it back over to Brian for some final thoughts Brian.

Thank you.

I want to reinforce Michael his commentary on our connection to families, which is so fundamental to our strategy.

It's right at the center of our corporate purpose to help all families discover the joy of everyday life.

As we enter the holiday season at the end of a truly remarkable year, we're humbled and gratified at the number of families who turned to target to help them stay connected this year.

We've helped them to find everything they need for a birthday party, including the decor the food the presence and a card we.

We created registries for couples getting married.

And for parents excited to celebrate the birth of a new child.

Of health, our guests to stay connected from a distance with a new mobile phone or tablet.

And we have helped them and joy the additional time, they're spending at home whether that was new to core office.

Office equipment toys video games or even active wear now, let's become work appropriate and a world in which all meetings or virtual.

Even though the holidays will be different this year, we know our guests still want to discover the joy.

And connect with those closest to them so.

So our team is focused on helping to make that happen, while providing helpful and friendly service and a safe environment during the busiest time of the year.

So with that we'll move to Q and eight.

John Michael and I will be happy to take your questions.

Thank you we will now begin our question and answer session. If you would like to ask a question. Please press Star then one and record your name Cleveland prompted if you need to withdraw. Your question you may do so by pressing Star then Q1 moment as we wait for our first question.

Okay and our first question comes from Chris Horvers from JP Morgan. Your line is now open.

Thanks, Good morning, everybody, so ive and near term question and a long term question starting with the near term I guess Im curious what your thoughts are on how this holiday plays out what what's the mood of the consumers that you've seen as you head end holiday you've had some events are ready that could.

At least test.

Where you're seeing strength and were not seeing strength. So how are you thinking that what's the outlook here for the holiday and and the timing and so forth.

Well, Chris Good morning, it's Brian what I started out give everyone a sense for and how we're viewing the holiday season, and we spent a lot of time talking to guys throughout the year and as it pertains to the holiday there are clearly telling us that they want to celebrate this holiday season, but they know it's going to be very different sales.

And our gathering.

Those trips and we used to take will be postponed, but we certainly expect at the guests that we serve is going to look for ways to find that a little bit of joy during the holiday season. They reacted very positively to our new promotional plan to start early and actually make those deals available throughout the holiday season.

We've heard very positive responses to closing on Thanksgiving day, and really minimizing those big traffic driving occasions that we've seen in the past. So we expect this to be a season is going to be very different. Unlike any other weve ever seen but we expect that get flow decorate their home and so we get under the tree.

Great and then apply and special waste and celebrate the holiday season, and older and a target our multicategory portfolio and our suite of fulfillment services as a way to make that happen.

Understood and then on the long term. So you are you seeing the likes of Levis Disney shop in shops, OLT last week today WWD as an article that share now this coming to target. It's clear that level fashion is on the rise at target there are plenty of well known brands at sell into likes of pennies.

And Kohl's and Macy's at now seem like a natural fit from under armour Chap. CK is this an act of strategy that you are pursuing on the apparel side.

What's been the dialogue there and there is there any pushback that you've heard from these types of brands.

For us to be really clear and our focus will always be non curations and making sure we balance of the right mix of our own brand and select National brand partners and that will be open approach, we'll take for years accounts. So we're very excited about some of our new partnerships and we're.

And now with Levi's and next year, and Twentytwenty, one and welcoming Ulta beauty to our stores and the target dot com, but we'll always be curators and buying the right mix for our guests between our own branded and iconic national brands.

Understood I have a great holiday.

Great. Thank you.

Thank you.

And our next question comes from Stephanie with skin from Jefferies. Your line is now open.

Thank you good morning, everyone I have a follow up question to classes of question just on brand expansion, but im curious if we can looks at the lens of your guest profile any insights into new to file guests, where they might be coming from and how those baskets may look relative to your historic average guys. Thank.

Thank you.

Stephanie we talked about the number of new guests at of churn at target during the pandemic and as John and Michael and I referred to and our opening comments, we're seeing a guests shop multiple categories and take advantage of our vast multi category of portfolio Sundays for shopping our stores Sundays for taking advantage of our same day.

And so and services and we expect that and continue so the.

Yes, they're shopping our stores right now are taking advantage of.

For multiple categories that we sell their shopping and apparel and home they are coming into hard lines and food and beverage. They are taking advantage of our beauty operating as well as how cool essential and again at some day, if we see that and taking advantage of the investments. We've made agreed a sales shopping experience in store and other day, they're taking advantage of the year.

And convenience of our same day fulfillment services.

Thank you.

Thank you for one moment for our next question.

And our next question comes from Edward Kelly from Wells Fargo. Your line is now open.

Hi, guys good morning.

Your gross margin performance. This quarter was excellent obviously, but can you provide a bit more color just on the mark down situation. So.

For 200 basis points that you mentioned was that all Mark Downs and how much of that was the was just less promos versus clearance.

And then how do we think about Q4.

As it relates to lead to these line items, and obviously pretty hard for us to predict at this point share for you as well but.

Any color there was that it would be helpful.

Sure I can take that one of.

Paul when you think about the drivers and Q3 of the.

The north of 200 basis points of good news from of a bucket of levers within merchandising. The single biggest of those for certain was mark down efficiency and we've seen continued efficiency on the for a markdown line throughout the year and and clear and so much of that is a function of our sales are higher than expected sales and some of the seasonal categories and.

You guys, well know a big part of our recipe for assortment and stores is bringing seasonal relevance and newness and in Q3 change over a lot of the store heading into the fall and we had sold through at greater degree of that assortment. This year than we typically see and that provided some real tailwind on the margin line in Q3.

When it comes to queue for lumps at Q4 is always its own animal. So we know of Q for bottom up with a clean sheet of paper and that's the way we've done at this year with admittedly a few more uncertainties and that equation and we might have typically but we feel really good about importantly, how our inventory position heading into the holiday season, and we expect that and.

Feel good about.

Prospects for the quarter looking forward and the strength of the multi category assortments and the strength of our fulfillment options ease and convenience and we'll be able to bring the gas should bode well for the fourth quarter.

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Yes, Brian I'd, only add and really recognize the great work our merchant teams have done throughout the pandemic and certainly in the third quarter, making sure that we quickly adjusted assortment and make sure. It's relevant for the guest in today's environment and I think you'll expect to see that and the fourth quarter at well, but our purchase of work very closely with our key then.

For partners and make sure we're making the adjustments and we've got a relevant items in our stores and online that guests are looking for today and that's certainly been a big part of our success of throughout 2020.

Great. Thanks, guys.

Thank you thank.

Thank you and remind if you would like to ask a question. Please press star one woman at the wait for the next question.

Thank you and and next question comes from Edward Yruma from Keybanc capital markets. Your line is now open.

Hey, good morning, guys. Thanks for taking the question you guys.

Very successful at operating and opening stores and some of these more densely populated urban areas for it give us some sense to how they perform maybe at some folks have left me of cities and I guess, the flip side of it if real estate becomes more accessible for the strategy and to lean into longer term. Thank you.

John you want to talk about flow of formats at 2020, and some of the outlook that we have for 2021 share Hi, Ed Yeah, we remain.

Really bullish on the small format stores and the opportunity in front of us there.

We have many different types of trade areas that we have opened small formats and.

Over the years and by and large day are all performing well. There's a couple of what I would say are probably not quite where we'd like to be given the year. One is college campuses those.

Those.

Are those stores that are heavily dependent on just students.

Have lagged the company, a little bit and and the other one is really around employment centers, not really wrong dense urban neighborhoods dense urban neighborhoods of continued to perform very very well employment centers, where people have been working for hone loads of have also lagged.

Little bit the rest of the chain, but as we look forward, we continue to see great opportunities across all the different trade areas we buy.

At least college campuses were very bullish on those for the future and so.

So you'll continue to see us look to.

Opened new small format in many of the same areas that we open them and historically and you'll see us begin to accelerate a little bit next year, and potentially 30, and 35, perhaps over time and get to 40 stores a year.

As we continue to think about opening those smaller stores to address trade areas for guests are seeking to target experience, but to day can't get that store experience. So like I said, we remain very bullish on and that whole concept.

Thank you.

Thank you and our next question comes from Karen short from Barclays. Your line is now open.

Hi, Thanks, very much and thanks for all of the color too.

And just wondering with respect and short term question and then.

Longer term.

A lot of color in terms of and things that you're in and you're doing near term and.

Also for January to the extent that.

January slows down, but I guess I'm wondering how you're thinking about at December from the perspective of there's been so much pull forward of shopping do you think there is some risk from at December perspective at December kind of stores, all the little bit and and how are you planning for that and then and just had one of their bigger picture.

Jerry and why don't I start and I think as we've looked at the holiday season, we expect that the guest and start shopping earlier, but continue to shop throughout the holiday season right at the Christmas Eve. So we think it's going to be a for a long shopping season, I think we're going to see very different shopping patterns. We don't expect to see those big spikes during black.

Friday, and non weekends, I think it's going to be spread across the holiday season, and we think.

At December is going to be a very important gifting season for our guests. So we're watching it carefully and again, we'll put a premium on flexibility and agility as we work through the months of November and December, but all indications as we talk to the consumer and cost of the guest is they're going to look for celebrate this holiday season.

They are going to be focused on gifting and celebrating with their family and close friend and we expected to be in our stores and shopping online right till the very end of the holiday season.

Okay and then my second question is just for so we look at 2021.

Obviously, there are some tough comparisons on the top line.

And maybe some tougher comparisons on the promotional from a lack of promotions. This year. How are you thinking about the environment and 2021 and as.

Some retailers have to lap some of the tough comparisons or is it a function of the fact that there are many retail is that.

We really can't be promotional because they don't have the bouncing and capability to do that.

Fair and right now we're very focused on the first half of Twentytwenty, one and this is going to be of familiar with and really taking some of the lessons learned from 2020, putting a premium on flexibility and agility because of the Michael liable said, we unfortunately don't have that crystal ball as we look for the future and we're off.

And looking for greater certainty, but we know we're going to go into the first half of 2021 facing the continued pandemic waiting for vaccines looking for greater clarity around the condition of the economy and unemployment and I think we'll get at just got to make sure that we remain flexible and provide the assortment and the service.

And the safety the guest is looking for and target. We certainly expect certain trends will continue we think gas will continue to consolidate and number of locations where they shop. We think our of multi category of portfolio will continue to be very important as we serve the needs of families. We think at ease and engaged and convenience combined.

Safety will continue to be important and will continue to deliver great value. So.

Michael talked about our continued focus on market share and the market share opportunities and are in front of us and I think we'll be very focused on continuing to build on top of the market share gains that we achieved and 2020 and further share opportunities and Twentytwenty one.

Okay. Thank you.

Thank you. Thank you. Thank you and our next question comes from Paul, Let's wait and see at Ti <unk>. Your line is now open.

Hey, guys couple of quick ones just I'm curious if you can quantify what percent of your sales increase is being driven by new customers for existing customers curious about the store comp if you can talk traffic versus ticket and.

And Brian you mentioned I think the top quartile of your stores of doing 500 Bucks a foot curious if you've looked at that top quartile, let's say out of 2019 versus the bottom core title. However, our each of those performing this year and 2020. Thanks.

Yes.

One and I start and then I'll ask for both John and Michael The reminder, for sectors, but I'll start with the recognition that on a day average, we see well over 30 million gas shopping our stores and as you've seen and our third quarter results. We see traffic continue to grow at a rate of.

For 0.5% back at expand over at 15% and certainly there are of mixes and new guests at target but.

The target, yes, and the family at the shop as each and every week, our visiting us more frequently they are certainly shopping more categories, and that's creating greater trips either at or stores or to our fulfillment channel and they are shopping a wider array of categories and take advantage of our multi kind of worth portfolio.

So we're seeing both growth with our existing debt and you do get the target and the target Dot com.

And I can any perspective on cost share versus lower tier of store performance yeah.

Yeah, I'll take that really quickly as you'd imagine given.

And just the magnitude of the number of stores those tiers tend to move in unison. So.

We talked about.

At the top tier being up the bottom tier and move the same amount.

And any individual store will have its own story, but but of course, they can move pretty consistently.

Not at the only thing I'd add is we look at our performance our comps by geography, each and every week and we're seeing very consistent result, literally across the country from both coasts and the Heartland of America and in the southern market really consistent top and.

Gross performance. So certainly it's not one of merchant markets that are driving at is not our top tier stores versus some of our lower volume stores, we're seeing a consistent lifts across the entire fleet of stores and obviously very strong growth and our digital channels.

Thank you guys. Good luck.

Thank you.

Thank you and our next question comes from Paul Trussell for installation.

Good morning, and very strong quarter.

The question and not going to cash is to John and on whether there is enough capacity of.

For the holiday season, I think the point is very well made there what I do want to ask of the how.

And I do want to ask about the evolution of the same day service and just curious on what sort of learning and given the robust growth how you're improving efficiency of your ability to add additional items of merchandising categories should be included in those service.

Yes.

Yeah, well first thank you God bless you for not asking about capacity I would tell you we.

Our store teams and the shift team continue to execute our same day services at a very very high level and.

I think you hit on one of the things we've been very focused on this year, which is really assortment expansion.

For drive up and for pick up that has meant adding frozen and refrigerated and fresh foods.

We are on a trajectory of we started the year to added to about 300 stores, we obviously paused in early spring.

And then as things started to open up really proud of the way our store teams responded and decided we could execute at across our properties team supply chain stores to get that and cost at 1600 of our stores today and so thats available and that's been a huge win for our guests and we see the unit increases the number of units and the basket increase as guest start.

Wrapping that and it was the number one guest to satisfy or if I can come and get diapers and.

A couple of other things like and I get a gallon of milk and some eggs and so now we're able to fulfill that right along with that and hope you and drive up with.

The order pickup and drive up Weve at an adult beverage another key category for us where again and just topped off the basket. So a real guess satisfy or end and we'll continue to work to at other categories at shipped the opportunity there was to get some more of our discretionary categories available for our guests as they use our same day.

Service and so as Brian mentioned earlier in the call, we added children's and adult apparel for that.

Right here before the holiday, we think that will do very well. So the teams continue to execute continue to build efficiencies and to what we're doing but importantly, I think the most important thing and they continue to AST and guess what it is they want and what we can fulfill for them and you will see us continue to work toward that and that will guide really how we continue to improve those.

Yes.

Operating cash flows.

For probably one more quick question.

Thank you and final question comes from Robby Ohmes from Bank of America. Your line is now open.

Oh, Thanks for taking my question and first Brian and team I, just want to say credit congrats on the execution of your strategy, it's been playing remarkable Michael.

My question I'm, sorry, I'm going I'm going to ask to you. Brian you mentioned and shipped I was wondering if you could give us a little more on shipped and.

Profitability and maybe growth outside of target, maybe a little more color on what ship is becoming and then the second maybe a short of question just on target plus share marketplace anything changing with your strategy. There that you can share with us given your momentum online. Thanks.

John you want to start with just and then we'll wrap up at target for us.

Yes, we continue of you really really pleased with the performance of shift and the execution of the team.

We said shipped at target has grown 280%.

This quarter $200 million of incremental sales of and its a key part of what we're going to do here in the fourth quarter, we think.

We'll see at throughout the fourth quarter really lean into our same day services order pickup drive up and ship as a waste of our way to fulfill our guests need and and shift will be a big big part of that I think beyond that shift continues to experience very strong growth and continued at retailers are over a 100 national and regional retailers added bed Bath and beyond this.

This quarter in addition to a few others Dave.

They doubled the number of shoppers since for spring and and our planning at another 100000 shoppers here for the flow of fourth quarter. So we continue to see really strong growth and we're very pleased for ships performance overall.

And and robbing on target for our approach continues to be the same and we're very selectively and curated and some vendor partners I think we're at about 175 right now we probably have now post of 400000, a day is available through target plot, but we'll continue to make sure we cure rate very carefully and complement our store and.

And assortment.

So with that I do want to thank everyone for joining us today I wish everyone, a safe and happy holiday season, we look forward to the day when we can always at together and person, but thanks for joining and thanks for your support and have a safe and happy holiday season.