Q4 2020 Target Corp Earnings Call & 2021 Financial Community Meeting

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[noise] attending our 'twenty 'twenty, one financial community meeting.

This morning, we're being joined by investors and others, who are listening into this webcast. Following today's meeting Michael and I will be available to answer any follow up questions before I turn it over to Brian to kick off the meeting I have a couple of important disclosures first any forward looking statements that we make this morning are subject to risks and uncertainties.

The most important of which are described in our SEC filings and second in todays remarks, we refer to non-GAAP financial measures, including adjusted earnings per share.

Reconciliations of all non-GAAP measures to the most directly comparable GAAP measure are included in our financial press releases and our SEC filings, which are posted on our Investor relations website with that let's begin the meeting.

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Good morning, and welcome to our 2021 financial community meeting.

We're eager to share our insights on the extraordinary year that just passed as well as our vision for what's next.

But I couldn't start today without reflecting on the fact that a year ago. At this time the pandemic was just beginning to unfold.

And then in an effort to keep everyone safe and us.

Limit travel, we decided to convert this meeting to a virtual format.

While we miss hosting our in person gatherings, it's prudent to stick with virtual presentations once again this year.

But we're looking forward to resuming our live events, including this one and our annual shareholders meeting in 'twenty 'twenty two.

As I look back over the past year.

A year when so much care and compassion was called for IC purpose, coupled with capabilities as the essential enabler of our response.

And the story of target in 'twenty and 'twenty is a story of a team that wanted nothing more than to take care of those around us drawing on capabilities that were equal to that ambition after years of building an investment.

So I want to start today by publicly recognizing and thanking our team.

I'm incredibly proud of the resilience empathy care and concern they've shown for each other our guests and communities through a very challenging 12 months and counting none of what we will share today would have happened without them.

Even before the dramatic challenges of last year took hold our team has been busy building the retail platform of tomorrow.

But 'twenty 'twenty accelerated everything.

And as such our guests are already benefiting from and loving that platform today.

At the heart of the platform was a belief that consumers would continue to flock to our stores for multi category one stop shopping.

A friendly well trained and knowledgeable team and joyful experiences.

As we designed our strategy and invested accordingly, we relentlessly asked ourselves what products and services those stores should offer.

Where they should be located how their operations should be tailored to meet the neighbourhood needs and ultimately how to make our stores worked together with all of our other assets as one shopping platform that would keep guests turning to target. However, they want to shop.

In answering those questions. We did two things at once we place the physical store and more firmly at the center of our Omni channel platform.

And we created a durable sustainable and scalable business model that puts target on a road of our own.

Our goal was to use our proximity.

Early 1900 stores within 10 miles of the vast majority of the U S consumers to offer the fastest and easiest digital fulfillment and retail.

And the capabilities, we built to become America's easiest place to shop also cracked the essential question of how to grow our digital sales exponentially, while maintaining the overall profitability of our business.

When we began this journey, we didn't know we would be facing a global pandemic mass quarantines rapid unemployment and the need to limit the number of people in public spaces.

And yet when those threats emerged in 2020, we were ready.

And without hesitation millions of American families turn to target like never before.

That happened because of the decisions, we made four and five years ago.

And today Christina Hennington, our recently named Chief growth Officer, along with John Mulligan and Michael Podolsky will join me and mapping out how our team's efforts in recent years created a new baseline from which we will continue to climb higher for our guests.

And here's what I hope, you'll take away from our story.

First that our team's ability to act and react in 2020 was years in the making.

With that our multi year roadmap to develop new capabilities and bring them to scale.

2020 could have expose essential gaps in our business model.

Instead, it prove beyond a doubt the durability of our model.

And it signaled our potential for continued growth in years ahead.

The second takeaway stems from a question I've heard frequently, especially in 'twenty and 'twenty.

Brian what's the secret to target growth trajectory.

What youll see in our presentation today is that the one thing that's driving our success is a focused commitment to several things an integrated collection of strategies and capability that all work together are very difficult to replicate and ultimately make target unique.

I'll start today with a high level recap of our full year results.

When we gathered virtually for this meeting last year I shared our revenue had grown by $5 $4 billion since 2017.

And that we were consistently gaining share in many of our core merchandising categories in.

In other words, we were already starting to see steady growth from our investments.

When we left that meeting no one knew that COVID-19 will be declared a pandemic in the United States only a couple of weeks later.

In hindsight it is hard to believe that we only received one COVID-19 related question that day.

But today as we look back on 2020, the business highlights are clear.

Our revenue during the year increased another $15 billion.

We gained meaningful market share across all five of our merchandising categories totaling about $9 billion.

Our full year comparable sales were up more than 19%.

With a store comp of more than 7% in a year when people were staying home to stay safe.

In a digital comp of 145 per cent.

Standing at this meeting three or four years ago. It would've been hard for any of us or any of you to imagine digital penetration of 18% without a dramatic deterioration in our P&L.

Yet today, we announced record high full year adjusted EPS of $9.42.

Importantly, we accomplished all of this while making huge incremental investments in our team safety and wellbeing.

And completely re outfitting our stores to keep our team and guests safe.

Far from being a fluke. This performance is further proof that we built a business model that is working as intended one that puts target in a category of its own.

A few consistent pillars have been and will continue to be at the heart of our playbook.

The enormous investments we made in supply chain store operations and technology capabilities are already powering exponential growth in digital commerce.

They've enabled us to use our stores as showrooms and service centers, but also as hubs for digital fulfillment without these investments.

Recently wouldn't have been able to satisfy the exploding guest demand for same day services represented by more than 600% growth in dry bulk.

Likewise ship is an extraordinary capability that grew by more than 300% last year and will continue to grow as more guests recognize the power of having their purchases brought to their doorstep in as little as an hour.

We've consistently invested in our merchandising strength.

Our differentiated owned brand portfolio.

Our curated national brands inspired limited time offering.

And strategic relationships that run the gamut from web only startups looking for omni channel scale to Premier partners like Disney Apple Levi's and Ulta beauty.

We're continuously improving our physical and digital shopping experience investing billions in store remodels.

Specialized store Rolls and service training for our teams, while continuing to open up new small formats in urban centers major college campuses and iconic tourist destinations.

Most importantly, we're continuing to invest in our team.

Even before 2000, Twenty's outsized incremental expenditures on team health and safety target was an employer of choice and Academy company for those looking for a rewarding and purposeful careers.

In addition to accelerating our $15 starting wage in 2020, we celebrated our team's exceptional efforts with five separate recognition bonuses. Most recently in January when we invested another $200 million to award each of our frontline team members $500.

As we develop capabilities like target circle or acquire them like shipped we do so with a clear vision for how they'll work together in service or against Us.

Ultimately the value they create in our core business has to contribute to our retail offering that's greater than the sum of the parts.

But when we look at these elements individually is strikingly clear how much value. We have added in a very short time.

In 2016, our digital transformation was only beginning we.

We weren't even a top 10 e-commerce provider.

And we were just getting our same day services off the ground.

Today, we have the most complete suite of same day fulfillment services in the industry.

We're one of the leading e-commerce players and for click and collect same day services, we continue to deliver industry, leading growth and dollar volume as well as net promoter scores over 80% despite record demand.

In 2016, we had about 30 small format stores today, we have 140 and will add another 30 to 40 per year over the next several years.

If these stores were standalone chain their revenue would rival that of fast growing chains with many more locations.

In 2016, we launched pillar port and cat and Jack touching off our own brand reinvention and us since resulted in more than 30, new brands with more on the way this year.

By the time, we gathered for this meeting last year Cat and Jack and five other owned brands, we're generating 1 billion or more rfps in annual sales and that tally has continued to grow.

We clear 2020, with 10 of our own brands, each generating $1 billion or more and four of those cross the $2 billion per year threshold.

Any one of these brands alone would be a sizeable retailer and as you know their contribution profit is outsized.

Of course owned and exclusive brands are just one component of our merchandising strategy, which as always Ron on <unk> national brands across our assortment.

As we've expanded capabilities in recent years, we've also steadily built our roster of strategic partners.

Levi's is an excellent example of how we can build upon our longstanding collaboration and help strategic partners catapult into new product categories.

We started partnering with Levi's years ago on the Denison denim brand and.

And that partnership group to include Levi's, Red tab apparel and built out presence in hundreds of stores and on target Dot com.

Just this last Sunday, we launched the Levi's for target collection of limited time offering of Homegoods.

This is the first foray by Levi's into this category and it's a great example of combining their strengths with ours, including our incredible sourcing and product design and development capabilities to forge new potential for both of our brands.

Meanwhile, our team is also gearing up to introduce Ulta beauty at target to our stores and target dotcom, starting with the first hundred stores later this year.

From this initial batch will test, we'll learn and we'll expand our hundreds of additional locations overtime.

This partnership combines Ulta, Beauty's unparallel assortment category expertise and guest loyalty with our large high growth traffic driving beauty business and the ease and convenience of our fulfillment services together.

Together, we'll be able to offer guests access to established emerging and prestige beauty brands as well as expert beauty consultation and an industry, leading omni channel retail experience.

As a standalone or isolated innovation each of these elements I mentioned has something in common with the other.

Each was advanced based on how it would complement our other assets and capabilities and we tested each one with an eye towards scale.

In fact, the ability to integrate and scale is a key component of our decision making.

And to emphasize the critical importance of scalability I simply think back to what we could have done in 2016, but didn't.

At that time conventional wisdom held that the only way forward was for retailers to build capacity to send more packages to homes.

Instead, we went our own way built a fulfillment model with our guests local store at the center and took the initiative on same day.

We could just as easily have constructed additional fulfillment centers and driven the shift to digital sales with more ship to home capacity.

But as you know the economics were terrible and we wouldn't have been differentiated.

In short we didn't see the textbook solution is scalable or as likely to do what we've done, namely set the groundwork for years of guest satisfaction and brand loyalty as represented by comments like this.

Thank you for providing curbside pickup.

It actually was the determining factor in me buying from target instead of one of those online retailers.

For this.

For this.

Or this node from a guest who simply said please always continue to do curbside pickup.

It is such a help even outside of Covid.

This is a wonderful service and I'll continue to choose target for this very reason.

So where do we go from here and how do we keep climbing from this strong new baseline.

In the near term will continue to generate incredible value by executing on our strategy.

Throughout the pandemic, we built deep trust and loyalty with our guests, who clearly prefer the ease and every day inspiration of shopping at target.

Along with a relentless commitment to the safety and cleanliness of our shopping environment.

This is a decades long commitment that was only emphasize by the pandemic and it'll continue to be a differentiator in the months and years ahead.

Our multi category merchandise portfolio is a huge advantage.

Glee as shoppers continue to consolidate trips and we're absolutely committed to delivering value and everyday affordability, which is important in any environment, but particularly as the economic consequences of Covid continue to play out.

At the same time, we'll continue to listen closely to our stakeholders and to build upon our strategy.

So in the years ahead, you'll see continuous iteration and improvement in the pillars I've mentioned already.

But we will also focus on better localizing, our experience applying learning from our small format expansion.

And we'll continue to build skill and personalizing the experience.

Leveraging capabilities like target circle to better understand our guests and find new ways to engage and reward the 90 million members who've joined so far.

To ensure we're continuously delivering great value and emphasizing everyday affordability will stay laser focused on being price right daily.

And on showcasing our value with clear messaging and relevant promotions.

Importantly will also double down on an approach to sustainability that builds on our rich legacy and company purpose.

This includes decades of community relations.

Corporate responsibility and philanthropic leadership grounded in our 75 year track record of giving five per cent of our pretax profit and a sport a vibrant and inclusive communities.

Our intent is a further use our size and scale to benefit people and the planet.

Building on the work we've done already to elevate our offering a sustainable brands to create equity and opportunity in our communities.

And to help protect the environment.

Hi, stakeholder expectations for corporate responsibility only inquiries from the pandemic and the 'twenty 'twenty demonstrations for social Justice.

And as we've seen for years sustainability bills resiliency in our operating model and fuels growth and innovation.

So this is work that's important not just our guests our team members, our investors and our communities, but to ensuring our business model remains durable for years to come.

The best predictor of whether we can follow through on our aspiration is a track record of taking care of our team serving our guests and communities and responsibly growing our business and.

And to give you a more detailed picture of how we'll continue to do that in the years ahead, I'll ask Kristina, John and Michael to weigh in.

Christina.

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Thanks, Brian it's great to be joining all of you today and I'm really excited to discuss how our teams have differentiated target in the marketplace and some of the potential we see in front of us.

Now I should mention upfront that I joined target back in 2003. Since then I've held a number of roles across merchandising over that time I've seen a lot in our business ups and downs goodyear's and rebuilding years economic booms and a great recession.

But I've never seen anything like last year of course, COVID-19 is an unprecedented event challenging our team and our guests in ways, we never could have imagined.

But how he responded at target empowering our teams moving quickly and leveraging the power of our multi category assortment.

That's target at its best in fact, that's target better than I've ever seen us so.

So when I think about my new role in bringing together insight strategy and innovation plus planning design sourcing and buying functions. It's not about fixing anything it's about improving on what worked so well last year.

It's about keeping target relevant by staying ahead of what our guests need and it's about positioning target to drive growth in 2021 and for years to come.

We were successful last year, because we gave our guests a lot of reasons to be confident in shopping at target.

Work of our frontline teams to keep our stores safe and clean has made target a destination.

Happy place other guests limit other trips out of their homes. Our suite of same day fulfillment options was a game changer driving triple digit growth in our digital sales.

And regardless of whether our guests were strolling our aisles are scrolling on our app, we struck that balance between replenishment and discovery.

Through the breadth of our assortment along with a single view of inventory and teens, leading across all channels, we were able to move with speed and agility meeting guests' needs. Despite the fastest changing environment we've ever faced.

A lot of you probably saw this last spring and observing our business or in your own lives.

In the space of just a few weeks at the outbreak of the pandemic guest stocked up on food beverages and essentials.

Then they turned to us for help in converting kitchen tables into classroom space and spare bedrooms into home offices, and then they look to target for fitness gear games and other entertainment as they settled in for the long haul.

That kind of volatility continued throughout 2020 in fact, one of the only constant last year. It was that no matter what happen Rguest turned to target for help to meet functional needs to get through the pandemic and for inspiration enjoy especially around those key seasonal moments that took an added importance for so many people last year.

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So we never looked at our business from the perspective of a particular category instead, we shaped our business decisions around what was happening in the world.

That's something we'll continue to guide us because when we focus on what's happening in our lives forecast, it's obvious what categories, we need to flex to keep building on the trust they've placed in target.

Our multi category assortment is a competitive advantage because it keeps target relevant no matter what.

But how we manage that assortment the premium we place on curation partnerships and product design and development.

What differentiates target.

Brian touched briefly in our billion and multibillion dollar owned brands.

Our own brand portfolio, which spans all categories is vital to the success of our business.

It represents about one third of our total sales and even more of our gross margin, which helps us sustain key enterprise investments.

And target own brands continue to generate strong growth because of our approach to creating designing and maintaining these brands there.

They're not just private labels their brands, our guests' trust their brands our guests love it.

A great example of this is in the athleisure space.

Even before athleisure became work from home apparel. This is a hot category and it was an area, where we had room to raise our game.

So early in 2020, we launched all in motion and last month. He became a billion dollar brand that didn't happen by chance, we were able to respond to this trend quickly and build a beloved brand because we invested in co creating this brand with our guests.

Our team took to 15000 people.

We can started with 65 fitness pros.

And we had team members attend dozens of workout classes without gas.

That's the kind of work, we put into own brands across our assortment in every category.

So whether its sweating tourist spend class are talking to parents and kids about how cat and Jack can meet their needs or taste testing every recipe and are good and gather assortment before we launch we go the extra mile.

Resulting in brands, our guests don't us by because we offer them at a good price, but instead brands they love.

Brands that are the reason why they're shopping at target in the first place.

And that work continues this year, we'll announce and launch several new owned brands in areas, where we know target can make a difference for our guests.

This focus on making target irresistible through our products and our experience also applies to how we work with our National brand partners.

And it's an approach that is made target a place where national brands thrive.

You've heard about Levi's, including the limited time home collection that just set and the Ulta beauty at target shops, we're adding to our stores and target com This year.

Those are great examples of what target represents for our partners.

Levi's is an iconic brand that for a long time had thrived largely in department store environments.

But as they began exploring new platforms they turned to target.

And Ulta beauty is an incredible leader in specialty beauty through our new partnership will provide access to brands. We know our guests love, but previously had to go elsewhere to get.

This kind of work is a big part of what makes target special and we're not stopping there.

Just last week in fact, we began rolling out a dedicated Apple experience starting in 17 stores across the country and online.

We're doubling the Apple footprint in these stores with new lighting fixtures and displays for Apple products, including an extended assortment of accessories.

We have a new dedicated Apple landing page on our digital channels and we'll offer our guests more expertise with Apple train team members in these stores and enhanced product videos on our App and website.

This is really exciting because we're taking the work we've done with Apple over the last 15 years and making it even better.

Finally, I want to touch on a body of work that's incredibly important.

The efforts underway to make target more relevant and more welcoming for black guests.

Over the last few years, we've listened carefully to our multicultural gas as a whole and we recognize there was an opportunity to do more for black guests.

So we've added more brands and products that we know they love it.

Great example is what we've done in the beauty space with 50 Black on Black founded brands now available in our industry leading assortment.

But we're committed to doing even more in key categories through our own brands and partnerships building on our progress to ensure that we're delivering on our purpose of helping all families discover the joy of everyday life.

The retail landscape is never static so the retailers that will win are the ones that have a durable business model something we've built at target.

But just as important the retailers that will be best positioned for the future are the ones who are the closest connection to their customers and the ability to flex to meet their changing needs.

That was critical to target success last year.

And that obsession with listening to our guests understanding of things that are shaping their world and meeting their needs for convenience and ease inspiration and discovery across all channels is what has target poised for continued growth in the years ahead.

Thank you and now I'll hand, the meeting over to John.

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Thanks, Christina and good morning, everyone.

While most people expect the operations guy to get right into the technical stuff like capacity throughput and automation and don't worry I will get there I'm going to start with our people the target team in a year when the flexibility and scalability of our operation was pressure tested our team rose to the challenge just like they always do.

There was a connection between processes technology, and physical assets that allow us to deliver safety ease reliability and even a bit of joy during a year of uncertainty for our guests.

Of course, the team wasn't starting from scratch as you heard already this morning, we've been investing in them for years and building capabilities that would set them up to better serve our guests and anytime let alone a global pandemic.

Let me take you back for a minute to one of our favorite reference points. It was early 2016 and target strategy was coming into focus after years of testing and listening to our guests we knew that betting on our stores and uncommon proposition at the time would be at the heart of a durable and scalable model and we needed an operation with the right capabilities to drive it.

Getting there wouldn't be fast or easy quarter after quarter, we tested iterate it and learned how to modernize our supply chain update our stores use them as fulfillment hubs and train our team to bring every part to life than.

And then we had to learn how to do it at scale.

In 2019, all these efforts started operating together and we saw tangible proof through financial results market share gains in guest satisfaction scores that our work was paying off.

Fast forward to 2020, we were ready for the world to change, but only because of the years, we spent laying the operational foundation.

The story of how we navigated the twists and turns of 2020 starts with replenishment because of the whole operation relies on getting the right product to the right place at the right time.

This last quarter 95 per cent of all sales online and in person were fulfilled by our stores, which is why it's critical they have enough of the inventory our guests want to buy without that piece the operation simply stops.

When the pandemic hit last spring Rguest shopping behaviors changed nearly overnight.

We saw heavy stock up trips huge in store surges, and then a quick shift to online shopping to.

To meet the needs of the guests are supply chain had to turn on a dime.

We sent hundreds more deliveries than we planned every day to replenish stores fast and often flexibility we'd learned from opening dozens of small format stores.

We prioritize the flow of a central inventory like paper towels, and cleaning wipes to quickly send stores more of what they needed not just what was planned.

As we sold every paper product we had last March we expedited everything we could from our vendor partners and secured greater allocations of additional inventory as they ramped up to produce more.

In a normal year, we just spent months preparing for the traditional Q4 shopping spike but in 2020, our peak season started in March.

And after months of moving record volume, we'd become increasingly efficient in how we managed high levels of demand. So when the holidays actually did arrive we leaned into what was already working.

We sent more inventory to stores than ever to prepare for an earlier holiday rush, we frontloaded those deliveries with the seasonal merchandize guests would expect so our stores would be stocked and ready.

And we continued prioritizing essential products like cleaning supplies and health care items. So we could keep meeting the pressing needs of our guests.

The flexibility of our supply chain set up our stores to play an essential role in our communities because we could restock shelves quickly guests could count on target for what they needed whether they came inside our shop online.

And when our digital business picked up last spring our fulfillment operation went into high gear.

Up to that point, our same day fulfillment services had already been rolled out nationwide millions of guests with loving them because they are fast and easy we have always loved them because they are incredibly efficient without the shipping expense. These orders look much more like a store sale than a traditional online transaction costing on average 90% less than if we'd shipped it from a.

And at the start of 2020, our same day sales were growing at a healthy clip.

Come spring when consumers saw the need for more contactless ways to shop, those services exploded and we have the infrastructure in place to grow alongside demand.

Brian gave you the full year highlights on drive up up more than 600% and even order pickup which has been around for years still grew more than 70 per cent.

And our pickup options the delivery capability, we haven't shipped became even more important it filled the need for guests who wanted an online order, especially for perishable items, but also for so many other essentials across target brought right to their front doors.

It offered more personalization reliability and speed than they could get from a package shipment and as a result ships target sales grew more than 300%.

Of course, we continued to ship online orders from the back of our local stores saving 40 per cent of the cost of shipping from a warehouse and economic advantage for us as digital sales now account for even more of our total revenue.

With third party carriers fielding historic levels of volume, we worked closely with our partners to plan for capacity constraints and sent millions of millions of packages to guests doorsteps.

But the popularity of our same day services gave guests another option to shop from home yet receive their orders faster reliably and on their own time.

Guests had ship deliver when it matched their schedule instead of guessing when a shipment would arrive they drove through our pickup lanes when they were already out and about no appointment required.

This gave guests of flexibility they couldn't find anywhere else. The extraordinary growth of those services has shown just how much guests value that convenience speed and peace of mind and the comfort they find and having a contactless option.

In fact, we found that what we built to make target the easiest place to shop had also set us up to be one of the safest.

I've said countless times than a benefit of using our stores as hubs as our ability to ramp up and peak times and ramp back down based on demand.

This last year the stores ramped up and stayed there in.

In early spring our stores, we're fulfilling more than a single day than they had in an entire week the year before.

Day after day after day.

At the same time they were also continuing to support a safe and easy in store experience, which also drove strong comps.

Our digital business continued to pick up steam or store sustain that pace for months on end records were set and then broken again and again and again.

But the years, we spent building a rock solid fulfillment capability in our stores prepared us to handle waves of volume without sacrificing the guest experience.

Stores, new how to staff for peaks train other store team members to pitch in when things get busy and adjust storage space to hold more orders.

Despite wild growth our net promoter scores that represent guest satisfaction stayed incredibly high.

It's one thing for our teams to adjust a record volume, but it's even more impressive to do it while we enhance the services themselves.

As digital demand surged, we simultaneously broaden the assortment to make even more of the store available for same day fulfillment.

We added apparel to ships delivery offerings and tested adult beverage pick up in a handful of markets, most notably we added fresh and frozen grocery to drive up and order pickup.

Although this expansion was already in the plan, we accelerated the rollout to go nationwide. This summer.

Operating even more guests with central groceries through our contactless services.

Importantly, we also adjusted the process to make our services, even safer and more efficient.

With drive up and order pickup guests now display a pin on their phones from a distance or through a car window. So teams can securely deliver the right order while staying farther apart.

You gave additional store team members backup training and fulfillment.

For example, when we temporarily closed our Starbucks cafes, we talked hundreds of barista us how to efficiently pick and pack and order.

That allowed us to keep those team members on the schedule and build their skills, while also helping us manage high volumes during peak times.

And we added thousands of drive up parking spots, so guess could get in and out even faster.

At the same time ship more than doubled its shopper network to increase the number of delivery windows it could offer to keep up with soaring demand.

It's worth taking a minute to emphasize that using our stores to support digital demand is only possible because of the trust and collaboration across many teams at target it's.

It's not just our stores operation or supply chain effort. It's the product of many teams strategizing around a common purpose to deliver for our guests.

That one team mindset is what built the capabilities. We have today and is what allowed us to adjust swiftly when the business accelerated unexpectedly.

We built an operation to handle the healthy digital growth, we expected through the middle of this decade.

The only surprise was that we got there last year much sooner than planned.

Although we design for that kind of flexibility and scale in the long run our team hadn't planned for it to come all at once and that's what makes their outstanding execution with no advanced warning all the more remarkable advair.

Advancing the business several years in a matter of months prove that our model is scalable.

And also proved we have the capacity to grow.

I'd remind you of what I've shared in several of our past earnings calls.

A reliable way to assess our stores throughput capacity is to look at the sales we do per square foot.

And you can see that productivity has grown a lot over the last couple of years for our average stores, but also for our top quartile.

The fact that we continue to see more throughput in our highest performing stores shows the capacity we have across the rest of the chain for even more growth in the future.

With all of the expectations, we have for our stores the physical buildings themselves play a huge role in our strategy.

We are as committed as ever to our years long initiative to remodel stores with an inspirational specialty store field that makes shopping easy and convenient.

At the beginning of last year, we'd started about 130 full store remodels in mid March to reduce distractions in our stores, we decided to complete the projects. We'd started then we pivoted to more targeted improvements that emphasize safety like installing plexiglass dividers and reformatting, our sales floor for greater distancing.

The timing for our small format stores also shifted after pausing construction in the spring our teams accelerated the work through the summer and fall to finalize more than two dozen stores for new local guests.

Despite stopping the work for part of the year, we still opened twenty-nine small format stores. The most completed in one year to date.

From the Las Vegas strip to UC, San Diego, our first store right on campus property, we tapped into new communities.

And we continued expanding across markets like New York and L. A with each one target brought us safe and our central shopping experience to even more guests while positioning us to serve those neighborhoods for years to come.

Our construction and store design teams also adjusted following the demonstrations for racial justice this summer.

One of our Minneapolis stores required an entire rebuild without at the local community had nowhere nearby to get essentials like baby Formula and fresh food.

So we partnered with local nonprofits to distribute needed supplies, we're putting plans in motion to reopen fast.

We leaned on the expertise, we developed remodeling stores and opening small formats to meet our community's needs.

We listen to nearby residents work with local contractors personalize the in store experience and reopened months later as a convenient shopping destination, but also as a better partner to the neighborhood take a look.

What does it mean per target to come back in the community how.

How do we make this store their target store, but also how do we hope this community rebuilt.

Thinking back to the way George floor it was merited.

We're already emotionally.

I came down and drove like Sri powers. Thank you awards corroborate without these stores feature we are target the Lake Street store, so pivotal vocal pointing US community. This store I've always said it has the type of us heartbeat, there's like a pulse to it our team members kept saying when are we going home always this reference of home.

Target hasn't changed to just open a building and saying here's what you had.

Target did the right thing and say what do you need what are your what are getting better partner with the community.

We listen to the voices of the community, we listen to the voices of our team members, we listen to the voices of our guests.

We use nor companies, which is a local black on business.

And the wall of her team has done an amazing job of bringing the designs for life.

Our food space has grown almost doubled what.

We opened up our eyes to have more product in it.

We've made significant changes to store culture store environment to make sure that we match the community Targa has done an amazing job was taken out of a year long process squeezing it down and so a few months and then getting those stores open.

You are the heart and soul of this happening and I feel that heartbeat is tremendous.

Tremendous pride and joy to be here to celebrate yield.

What this represents.

The tragedy for us even closer.

We're here with smiles on our face so we're excited to serve.

Bob.

From that video alone, it's clear that our team is dedicated tireless and incredibly compassionate when it comes to serving our communities.

You saw it in the opening video and you've heard it throughout this morning, our team is the heartbeat of target and even when faced with challenges they bring their a game seven.

Several years ago, we implemented a new operating model in our stores to lift up that drive it was a shift towards specialized roles to give our teams expertise empowerment and a sense of ownership and how they serve our guests.

With that model in place our team could quickly adapt to the ups and downs in 2020 execute well and playing a central role in our communities.

Now like anything in life balance is good and we found opportunities to train our specialists and other areas like teaching our hard lines expert how to fulfill an online order so they gain skills beyond their specialized position.

Those investments in their development also add flexibility to our operation we've always known that supporting our team would have great returns and it has in addition to the bonuses time off options well being benefits and expanded nationwide starting wage that Brian mentioned, we also gave our team even more hours with a greater investment in our trained in.

Expert workforce, we saw turnover drop and guest satisfaction rise.

Its a strong testament to what can be done when we empower our teams to use their skills and passion to serve our guests.

The bottom line is that as our business grew exponentially our operation flex alongside and.

And as we delivered for our guests we built on the trust they put in us to meet their needs and make it easy.

Going forward, we're taking the capabilities that drove target in 2020, and accelerating them to continue making target the safest and easiest place to shop.

As we do we'll invest in more capacity and greater efficiencies. So we're positioned to continue growing for the long term.

In our supply chain that starts with expanding our network. So we continue to have replenishment capacity that can support our future growth and.

In recent years, we accommodated steady sales growth through our existing supply chain network by increasing the productivity of our buildings.

In fact, the average sales per foot supported by our distribution centers rose nearly 30% between 2016 and 2020, thanks to a series of process and technology improvements.

During those years, we didn't open any new Dcs to support replenishment.

But after our business grew nearly 20% last year with 95 per cent of sales driven by our stores, it's time to expand our supply chain. So we can support a much higher base of sales and continue growing.

This year, we'll open two distribution centers to support replenishment.

John and close to the New Jersey, Delaware, Stateline and another in a little village neighborhood of Chicago.

And we currently have plans for one on each coast in 2022.

We're also continuing to simplify the unload process once product reaches the stores in a nutshell. It all comes down to how we shorten organize millions of items before they arrive at the stores loading dock.

We've shown you the robotics capabilities, we're building to help us sort inventory to the precise amount of store needs and organize it by store aisle.

When we do replenishment in stores as fast team members gravitas walk to the aisle and stock the shelf.

No sorting in the backroom or finding places to stash cases of excess product.

We have two solutions that help us do that we showed you both of these independently last year.

One called auto Rubin starts individual items.

This is most useful for slower moving inventory when stores only need a handful of items to put back on the shelf.

Auto Reuben started in one of our local Minnesota warehouses rolled out to two more and will expand to another two this year.

The second is the robotic ships order we've been building our Perth Amboy facility. This sorts everything from boxes of individual items to entire cases, a product after the short robot sequence inventories. So our team can low pallets and an order that save stores, even more time.

Individually these capabilities are hugely valuable, but they're designed to work together.

This spring, we'll put both solutions and one warehouse to test how they bring more precision and speed to store replenishment.

In Q4, we will run them together at a small scale doing what we always do to learn and iterate before we go bigger.

Opening new warehouses and expanding our robotics capabilities are both about moving product more easily to stores.

But just as important as being ready to send what stores need before they even know it.

This year, we'll continue expanding the rollout of our predictive inventory positioning capability across our assortment.

This helps us more precisely order and position product close to where we anticipate guests will want it. So we can react quickly when there's demand.

In turn it improves out of stocks and lowers backroom inventory levels.

In 2020, when sales Spike this capability allowed us to order and restock products 25 per cent faster than using our old systems.

This year, we'll use it to order and position even more items in our assortment. So we can replenish the majority of the store faster for our guests.

We've talked about how storage punishment feed store fulfillment.

This past year, our team was able to keep filling online orders because our supply chain was replenishing that inventory with speed and precision.

While we continue refining our replenishment operation, we'll also build on our fulfillment capabilities to enhance the guest experience and make way for future growth.

Today, the majority of our store assortment is available through our same day services.

But we're continually working to give guests even more choices in coming months, we'll expand our pickup options further into categories like apparel and fresh food.

And roll adult beverage pick up to 800 more stores.

We're also continuing to improve the target run so it's even easier for our guests and faster for our team.

For example drive up guests will be able to share more preferences in the app like telling the team where to place the order and their vehicle or assigning an alternate pickup person. So it's easier for a spouse or family member to pick it up.

Numbering our drive up space. So our teams can find guest sooner.

For those times when a guest pulls up in a black SUV next day eight other black Suvs.

And we're updating the team member App. So they can more easily see what orders are in progress and where they can help.

Our same day services have grown faster than any other fulfillment method, but when we do ship online orders will continue sending the majority of those packages out the back of our stores.

Since 2016, we scaled our ship from store capability from a low tech test in a few hundred stores to a sophisticated fulfillment operation and most target back rooms.

Now before anyone gets too worked up I don't mean, we have robots hiding in the back instead, we've got efficient tools technology and process design working together continually increasing the number of orders a store can fulfill.

Next we'll take it a step further developing last mile capabilities that help us continue scaling. This operation. So we can ship more orders from stores, an even lower cost.

To do it we're testing a new type of facility here in Minneapolis called US Sortation Center. The idea is to make our stores as hub model, even more efficient while also reducing our lowered on external carriers take a look.

From the stores the hub model is really centered around the assumption that we can use the story in our gas local community to fill all of their needs and doing our back rooms. We have team members that are continuously processing is about the star system order in store team member picks the items, Pat and Bob and then for us that packaged into cash.

Separate areas for each individual carrier in the Sortation center powerful we can cut out that sortation GAAP. So the story is focuses on the picking and packing.

Then we're able to have that target controlled trucks flow into multiple different stores multiple times per day and bring them to the sortation center. So from Lafarge doubled you even more fulfillment to our stores and to me that is super exciting because now we are able to enhance our guest experience.

Our packages arrive at our sortation centers, we have from taking capabilities that allow us to for Alto really granular multi channel had a carrier that means less time and ultimately lower Pos across the board the magic happens when we're able to source the packages to us.

And individual allow us that can be passed on to drive us partner for immediate delivery downturn that neighborhood level that enables us to get packages to gas faster and in fewer physical delivery with all of your packages arriving at the same time building out our Sortation Center network that allows us to.

To help control capacity okay.

Total gain control of cost and be more specific and precise in delivery to guests with speed and consistency.

This capability frees up time and space in our stores, which we can redirect into fulfilling more orders in the end it allows us to get orders to get faster and at a lower cost.

While we're still ramping up production at this first test facility, we're very confident in this concept and plan to open five additional sites in other urban markets later this year in.

In 'twenty and 'twenty, one we will also open more stores accelerating our growth with 30 to 40, new locations a year a pace will keep up for the foreseeable future.

With our small format strategy will expand in urban markets like Portland, L. A and New York City, where there are still opportunities to serve new guests and we will continue our focus on college stores with the University of Georgia, and the University of Michigan planned for later this year.

We remain extremely bullish on our college sites, even as the pandemic sent students to online classrooms and sales softened at many of those stores, we see them as a long term play to serve the college guests many of whom are on the brink of adulthood and building lifelong shopping habits.

We will also open a number of mid sized stores to serve dense suburban neighborhoods from Denver to Brooklyn.

As hundreds of retail vacancies have left holes in communities across the country, we've committed to sites, where we can fill a need for the local guests.

And as retail real estate prices have declined this year. We found these opportunities to serve new communities to be even more affordable.

Along with opening new stores will get back to remodeling our existing fleet after.

After stopping our full store Remodels last spring will pick back up later this year and complete about 150 stores in time for holiday.

And we'll plan to ramp up to more than 200 stores a year in 2022 and beyond.

Safety and he's had become the heart of target shopping experience and we will incorporate what we learned during 2020 into our future store design.

That includes implementing more contactless features from our restrooms to our checkouts and adding distance between merchandise and at the Czech lanes.

And as you heard from Christina will also bring brand partnerships to life in our stores throughout 2021.

A great example is the work, we'll do to add Ulta beauty to our sales floor, creating a specialty environment that seamlessly integrated into the target experience.

Similarly, we'll use store design elements to highlight additional brands like Disney and Apple for our guests.

We're investing in a lot of really exciting developments to fuel targets growth, but what they all have in common they're giving our team the tools or the backdrop to take better care of our guests and each other.

That shows up most in our stores, where the vast majority of our 350000 team members bring our brand to life for guests across the country.

A huge priority for our stores. This year is adjusting our staffing strategies to create more predictability for our team.

That's a challenge in any retail job, where ours are based on dynamic factors like consumer shopping patterns and changing team needs.

But we know having an engaged team with more consistent hours leads to higher productivity greater efficiency and lower turnover.

It creates a place where people joined to learn a job and stay to build a career.

And better serve our guests in the long run.

So well trained team members to take on other roles across the store and offer the option for longer shifts.

We will also build on our stores operating model by introducing a new standard of service to our teams.

It's not a checklist, but a set of principles that define great service like welcoming our guests and paying attention to what they need which might be a simple us finding an item or as big as building an outfit.

It's meant to give our team flexibility and empower them to do what's right for the guests in the moment.

Without our team everything else you heard today comes to a standstill.

The target team continues to be the most important part of our operation and I want to say an enormous. Thank you to all our team members for all they do to serve our guests and our communities.

You've seen us make a lot of operational investments over the last few years and our team and our stores and in our capacity for long term growth in.

In the most recent quarter those returns were clear.

We've created an operation unlike anyone else with our physical assets working together centered on our stores and fueled by our team to serve our guests and grow for the long term.

The capabilities, we built not only allowed us to navigate the most volatile time in retail history, but show that they can flex and grow to serve the ever changing needs of the consumer.

The work isn't done we're constantly refining an operation that is efficient fast and supportive of targets durable scalable business model.

From an engineer by training and a finance Guy at heart I can attest that you can't get too efficient or relevant enough. There is no finish line for continuous improvement and innovation.

We will keep making bets on the capabilities that give us the flexibility to serve guests well into the future.

We have a lot of strength heading into 'twenty 'twenty, one and a lot of work still in front of us.

But with a sound operational foundation, and the talent and resilience of the target team driving us ahead.

I look forward to sharing our progress in the quarters and years to come with that Michael I'll hand, it over to you.

Yeah.

It was a quarter for the record books at target do you think of the quarter target slowing.

Slowing those numbers out of the water from the retailer, earning an adjusted $3.38 a share for the second quarter profit rose an eye popping, 80% on record sales and our same day services order pickup drive up and shipped per 273% digital sales. These were up 195% in this company.

Quarter, 90% of that business is being fulfilled by our stores and our stores are driving the gross the stores by the way our newly full basket growth rate for target al Kelly, 19% another quarter from target, but I have never seen before in retail holiday sales pretty unbelievable numbers their comp sales are up.

17, 2% to 350000 team members in the us and in offices around the World where these results are all about us.

All I can say us while those news clips paint a vivid picture of the roller coaster, our team and our business experienced throughout 2020 or.

All in all it was a standout here in which everything we've spent years developing and building came together to serve our guests like never before.

So today after a year of record growth I want to start my remarks by expanding on our point, Brian mentioned earlier, because investors often want to know.

How much of targets growth is being driven by specific strategies or specific assets. For example, they want to know if we can isolate how much of our growth is coming from drive up from digital in total our own brand work remodel program in any other way, we can slice and dice the data.

And I understand the impulse, our internal team often wants to do the same thing and of course as a self described data geek I'm inclined to think the same way.

But then I see data like we first shared with you last year GAAP.

S who tried drive up for the first time spend about 30% more on average compared with before including an increase in conventional store shopping.

And we see a similar change in behavior among guests who try shipped for the first time.

These findings demonstrate that the benefits of drive up and shipped go far beyond the value of an individual trip, they're both capabilities that drive guest affinity creating value that extends well beyond the services themselves.

That same thinking applies to our merchandise categories. If you focus only on the amount of sales or growth by category you can miss how they all work together to drive guest affinity I see how this plays out with my own family over the next few months the cold weather in Minnesota will finally end and my kids will need warm weather clothes.

On the next Saturday morning target run will shop for those close and will also pick up some food a few office suppliers laundry detergent and maybe a prescription from Cvs.

Might wander over and purchased from spring to core and will probably need some more ear buds since the kids seem to be inventing new ways to lose or destroy them.

And on our way out will probably stop with the Starbucks near the entrance. So my wife and I can enjoy a coffee on the way home.

So now if you are going to analyze that basket is there a way to know which category drove the trip.

And beyond the basket itself Shouldnt, we broaden the analysis, even further since that trip dependant on our conveniently located store, that's clean safe and fun to shop, featuring low everyday prices and a friendly and engaged team.

Over time I've come to understand that guest engagement and financial performance are driven by everything we're doing at the same time.

Not any factor in isolation.

Among the critical factors of course, there are the tangible assets that show up on our balance sheet, including our stores distribution centers and technology.

But the list goes way beyond the balance sheet and includes our team our reputation and the trust we have established with multiple stakeholders, which only deepened in 2020, then theres. The target brand itself are owned and exclusive brands capabilities like marketing merchandising product design and development sourcing and so much more.

And of course, there is our culture, our mission and our values, which helped to unify a diverse and widely dispersed team in support of a common purpose.

So what's the key to our future performance. It's our continued investments in the assets and capabilities, both tangible and intangible that we can build and integrate to drive guest engagement and growth and.

And how should we determine what to focus on.

The answer comes from continually listening carefully to our guests the better we know them the more effectively we can invest in what they want and develop new ways to deliver joy and inspiration while making their lives easier.

If we invest the right way guests reward us with more engagement and growth, which in turn will create additional opportunities to invest.

Our success in 2020, which was years in the making US a perfect example, it started many years ago as we engaged in a comprehensive evaluation of our business our strategy and took a deep dive into the wants and needs of our guests that work led to a new strategic focus followed by years of investment of both capital and expense to rollout new fulfillment.

Abilities rejuvenated stores and brands, a modern store operating model and more.

Through that work, we built the foundation that allowed our team to deliver unprecedented results in the face of a rapidly changing landscape in 2020.

So this year our focus is to lock in last year's gains built on that foundation continue to deepen guest engagement and drive long term growth.

And following last year's growth of $15 billion more than we grew over the prior 11 years combined we're entering 'twenty 'twenty. One is a much larger company with a host of opportunities to build on last year's success.

Digital is one of those opportunities as John mentioned in 'twenty 'twenty the penetration of digital sales advanced many years in a single here with Covid is the catalyst guests who had never tried our digital services quickly changed their habits and tried them sooner than they would have otherwise.

We've long told you that on average a multichannel guest spends nearly four times as much as a store only guest and nearly 10 times more than a digital only guest now just in case there are any stats majors listening that's a statement about correlation not causation, so I'm not saying that a guest spending immediately changes that much after they move into.

A new channel.

Even so these average has helped us to understand how deepening engagement translates to a more valuable guest relationship and last year target gained an additional 12 million multichannel guests.

Of course, a portion of those guests were completely new to target, but the vast majority had previously shopped with us, but only in a single channel.

The opportunity this year is to build on our now deeper relationship with these guests as we engage with them more frequently and help them migrate towards a much higher average spend we see from our multichannel guests over time.

And today, even though we already have an unmatched suite of digital fulfillment options. There's more we can do for our guests. One way is to continue expanding the assortment of fresh refrigerated and frozen food items available for pickup and drive up when we studied the behaviour of guests who first shop for these items through one of these services last year, we signed.

Average increase in shopping frequency of about one visit per month compared with the control group.

On average these guests increased their food and beverage spending between 20, and 30% and importantly spent about 20% more than other categories.

As you heard from Christina we also have an opportunity to continue developing and launching new owned brands, while we become an increasingly attractive partner for leading national brands. In the years ahead will likely have many more partnership opportunities and given our strong performance in financial position can be very thoughtful and approaching every one of them.

This begins by ensuring the partnership is right for our guests and that the partner in financial arrangement are appropriate long term choices for our business and.

And of course, there's a huge opportunity to create value through target circle, which has grown in less than two years to include more than 90 million members circle is easy and free to join and members enjoy rewards that drive engagement directly which we can measure by the increase in spending among guests who joined.

But the value of circle only begins there because it also helps us to gain an ongoing deeper understanding of our guests and their changing preferences, helping us to connect them with our services brands and categories that address those wants and needs.

So it's clear that we're entering 2021 with a lot of momentum and a really strong foundation with a lot more room to grow as you heard from John we still have a long runway to expand the available assortment for our same day services, while we invest to broaden ships reach by entering new markets while.

Handing in existing ones.

When we acquired shipped in late 2017, we were confident that same day delivery was a capability every successful retailer would need to have and we've spent the last three years integrating shipped into our strategy and operations at.

At the same time the acquisition has made it easier for ships to grow and achieve scale in new markets given the volume that target immediately brings to the platform.

And as John covered we're investing to modernize our network and add replenishment capacity to support future growth. Obviously, we came into last year with a great deal of capacity, but we used up a lot more of it than expected here's one way to think about it at our current average sales per store last year's growth of $15 billion was equivalent to the addition.

Of more than 300, new target stores if.

If we had actually opened that many new locations, we would have needed some additional upstream capacity and that need us the same where their growth is coming from a bigger store footprint are higher productivity in our existing footage.

While I'm on the topic I want to pause and address the question of whether our stores are going to run out of capacity to grow digital sales.

And I'd start with what John mentioned earlier, how our top quartile of stores demonstrates the continued potential for our average stores to handle more throughput.

But I wanted to drill down into a really specific example to provide another view of our untapped capacity and what we can do when an individual location reaches its limit.

To do that I'm going to go way back in history and talk about our experience at a target store in Colma, California part of the San Francisco market.

20 years ago coma had grown to be our second highest volume store in the chain generating more than $90 million in annual sales nearly three times our chain average at the time give.

Given its extreme volume we suspected the store was running out of capacity, which was limiting its ability to grow.

So when a site of a former Montgomery Ward's became available just across the highway and Daly City, we decided to buy it and build a new target. This was unheard of in our history building, a new store less than a mile away from an existing one and it was a calculated risk because the new store with only makes sense if it drove incremental volume.

And that's exactly what happened the combined sales of the two stores quickly grew far behind with a single store was able to generate and today each of those locations is in the top 5% of our stores based on sales volume.

So let's come back to today.

Last year, our stores fulfilled more than 95% of our total sales, which works out to an average of about $47 million and fulfilled sales per store.

That means our average store today is fulfilling about half of what the coma store was already supporting 20 years ago.

This offers another clear window into the growth potential of our average store today.

But will there sometimes be extreme examples of stores that hit their capacity.

I hope so because we know what to do when that happens if we have a viable real estate opportunity nearby we could invest in another one of these modern multichannel assets, we happen to call a target store.

To be clear based on what we see today, we don't expect a lot of these opportunities over the next few years, but I'd love to be wrong about that since we'd likely generate strong returns on the new stores, we could open in those markets.

In the meantime, we continue to make productive investments in new small format stores and we're eager to begin ramping up our remodel program in 'twenty 'twenty, one and beyond.

So with all these options to generate profitable growth, we're in a position to play offense and lean into the opportunity to build on last year's momentum.

As such we're planning for annual Capex in the $4 billion range in each of the next few years to support Remodels, new stores and supply chain projects to add replenishment capacity and modernize the network, including sortation centers BR.

Beyond full store Remodels, we'll also invest in Ulta beauty shop in shops, while optimizing front end space on our highest volume locations, increasing the efficiency of our pickup and drive up services.

So now this is the section of my remarks, and which you would typically expect me to cover our P&L expectations for the year.

But today given the high level of uncertainty, we continue to face providing a lot of guidance would be an exercise in false precision instead I'm going to spend a few minutes talking about the most important factors affecting our near term plans as we maintain our laser focus on investing for the long term.

So first as I think about implications for targets topline in the months and years ahead, I think about the drivers at three levels of our funnel.

At the lightest part of the funnel or macro factors, including.

Uncertainty about the path of Covid, 19, and the speed and effectiveness of the vaccine campaign.

How consumer attitudes and behaviors will evolve as we emerge from the pandemic. For example, there is an emerging consensus that the nature of work will permanently change as employers move to a more flexible model and allow for more work from home.

This will likely have long lasting implications for consumer spending.

And finally beyond changes in the consumer mindset macro considerations include the health of the economy, the near term impact of stimulus and how quickly various industries and communities will recover from the pandemic.

The middle stage of the funnel involves questions around potential industry trends in each of the categories. We sell in every industry has its own story and.

In categories consumed mostly at home, including food and beverage essentials home and hard lines industry trends have accelerated over the last year and could see some softness as we emerge from the crisis. However, the timing and extent is hard to predict and could be offset by permanent changes in consumer habits, including a higher percentage of work time spent at home.

And an elevated focus on cleanliness and health, resulting from the pandemic.

And the beauty and apparel industries, which experienced softness in 'twenty and 'twenty trends are expected to improve over time.

Specifically as people resume working in offices attending concerts movies, and sporting events traveling and eating out theyre likely to focus more on their appearance and spend more on these categories than they did in 2020.

But let's be clear. These are just quick high level thoughts on potential industry trends and they're far from ironclad predictions.

So as we move to the bottom of the funnel and think about how those trends are likely to play out at target. We first need to think about market share within those industries.

And on the topic of share we have a lot of confidence as we look ahead in 2020 target saw unprecedented share gains across all five of our core merchandise categories importantly.

Importantly, these gains were not limited to the categories in which others were forced to close and they stayed remarkably consistent throughout the year and across the country base.

Based on this experience and our investment focus going forward, we're optimistic about our opportunity to lock in recent share gains and deliver long term growth on top of the foundation, we've already established.

So now I want to move beyond the topline and illustrate how we're thinking about other lines on the P&L for the year.

And in this discussion beyond prior year comparisons I will often be looking back to 2019 since that year provides a more stable baseline compared with the extreme volatility we encountered in 2020.

Let's start with the gross margin line, where in 2020, we experienced large but offsetting variances related to specific factors.

The first was supply chain and digital fulfillment costs, which drove about a 110 basis points of pressure last year.

While that headwind was notable it was less than I believe most of US would have expected given that we saw $10 billion of digital sales growth accounting for two thirds of our total growth.

As we look ahead to this year and beyond we expect to see a smaller amount of pressure from supply chain and digital fulfillment given that digital growth is likely to moderate and we continue to make progress in reducing average unit fulfillment costs.

A second headwind to last year's gross margin rate was category mix as lower margin categories grew faster than our higher margin categories accounting for about 90 basis points of rate pressure at a minimum this year, we expect category mix to exert less pressure than last year, and notably it could easily become a tailwind like it was in prior years.

However, our crystal ball is not nearly clear enough today to predict this year's category mix with any precision.

The third factor in last year's gross margin performance was our merchandising decisions, which include our pricing mix of owned and national brands and the magnitude of our promotional and clearance Mark Downs.

In 2020, the combination of these factors provided a significant tailwind of about 150 basis points, driven primarily by favorability in markdowns.

A portion of this favorability was related to promotions, but the biggest single factor was a significant decline in clearance markdown rates as demand in seasonal and other clearance sensitive categories far outpaced our expectations in 'twenty and 'twenty. One we expect our mark down rates will increase somewhat from these abnormally low levels, which will create some gross margin.

Pressure compared with 2020.

So how do these expectations come together in 'twenty 'twenty, one as we consider the range of expectations for the combined impact of these three drivers we believe that our 2021 gross margin rate will remain somewhat lower than our 2019 gross margin rate of 28, 9% on.

On the SG&A expense line. This year will be Annualizing last year's significant investments in safety measures and team member pay and benefits while also be annualizing, the fixed cost and other scale benefits, we realized throughout the year looking.

Looking ahead, given that we're focused on locking in last year's gains, we expect to attain significant scale benefits compared with 2019.

In addition, we expect to deliver continued efficiency improvements driven by investments in our supply chain technology, and operating model, which will help to offset continued investments in our team.

Altogether, we expect that our 'twenty 'twenty, one SG&A expense rate will also be lower than our 2019 rate of 28%.

On the D&A expense line, we expect to see moderate dollar growth in 'twenty and 'twenty, one as we ramp up remodels and accelerate depreciation on the assets. We replace of course rates performance will depend on the total sales we deliver this year.

So as we consider how all of these rates come together on the operating margin line, we're facing a wide range of possibilities as we enter the year I've already talked about the unpredictability of sales and how category and channel mix alone can impact our margin, but even with that uncertainty we should continue to benefit from the leverage we gained in 2020.

Altogether, our expectation is that this year's operating margin rate will move down from the 7%. We recorded in 2020, but remain above our 2019 operating margin rate of 6% with the most likely outcome in the lower half of that range.

So now for those of you, hoping we provide a more precise view of our expectations today.

I want you to know that I feel the same way.

I know that it's difficult to model our business right now our team is facing the same challenge.

In the face of this uncertainty we continue to put a huge premium on flexibility and agility, which served us extremely well throughout 2020.

After all flexibility is a cornerstone of our business model, which features a uniquely diverse category mix and a store based fulfillment model that can quickly adapt to changes in guest shopping patterns with the benefit of this model and outstanding team and a strong balance sheet, we're perfectly positioned to navigate any near term uncertainty.

While we continue to invest in long term growth.

And while it may sound counterintuitive, our expectations for the next few quarters for Cloudier than our view of the longer term when we're highly confident in our ability to grow profitably and build on recent share gains.

So now before I move beyond the P&L I want to spend a minute talking about the prior year comparisons were facing in the first two quarters of this year as you'll recall in the first quarter last year sales accelerated meaningfully after the onset of COVID-19, but our gross margin rate for the quarter declined astounding amount more than four percentage points in light of the cost to right size our apparel.

Inventory.

Also in the first quarter, we began making meaningful investments in the health and safety of our team and guests, which we'd maintained throughout the year.

Altogether, our first quarter earnings per share were down more than 60 per cent compared with 2019.

Contrast that with the second quarter last year, when our comp sales grew more than 24%. Our gross margin rate also increased and we saw a jaw dropping amount of leverage on the SG&A and D&A expense lines, which more than offset investments in team and guest safety as a result last year's second quarter EPS grew more.

80% compared with 2019.

That's a swing of more than 140 percentage points and our EPS growth rates between Q1 and Q2 last year.

So as we plan and analyze our performance in the first two quarters of 2021, we're going to lean heavily on comparisons to the much more stable environment, we experienced in 2019.

This will help all of us to look through the extreme volatility in year over year comparisons will be seeing throughout the first half of this year.

So now let's move beyond the P&L and turned to cash and capital deployment and I want to reiterate that our priorities remain the same as they have been for decades.

First we look to invest in the business and all of the projects that meet our strategic and financial criteria.

Second we look to support the dividend and build on our record of annual increases, which we've maintained every year since 1971.

One note if we attain that goal in 2021, it will mark our 15th consecutive year of uninterrupted dividend increases putting us in a very small group of companies, who can make that statement.

And finally, we look to deploy excess cash through share repurchases only after we fully supported the first two goals within the capacity of our middle a credit ratings.

As you know last year turned out to be a very strong year for cash flow in light of our sales growth and strong operational performance. As a result, we ended the year with about $8 $5 billion of cash well beyond the amount we've maintained in ordinary times.

But as strong as our year turned out to be we cant forget the volatility we just encountered in the environment today remains far from ordinary it's in that context that we evaluate our 2021 capital deployment expectations.

Regarding capex I already outlined our plan to invest about $4 billion. This year.

Regarding the dividend later this year, we expect to recommend that our board approved a robust increase in the per share dividend, but as always this recommendation will depend on how our business is performing.

Beyond those priorities, we have resumed share repurchases this year and depending on how the virus the economy and our performance progresses could have ample capacity within the limits of our middle a credit ratings.

But I will quickly say, we will continue to be cautious and maintain an ample amount of liquidity to carry us through a wide range of near term scenarios as such it may be a multi year journey before our credit metrics moved fully back to historical levels, depending on the speed with which we see more normal volatility across the economy and our business.

So now I want to turn to our after tax ROIC.

As we've long emphasized we rely on this metrics to assess the health of our business and the effectiveness of our capital deployment over time.

However, as is often the case with sometimes need to look past near term volatility and Twenty-twenty presents a great example.

That's because last year, we delivered an astounding after tax ROIC of 23, 5% up more than seven percentage points from already strong performance in 2019.

While this outcome is remarkable and a testament to our team and operating model I'm going to quickly say that it's artificially high unlikely to come back down over time.

That might sound like a strange thing to say, but it's based on a number of factors that are clear today.

First with unexpectedly strong sales or inventory turns shot up last year, and we saw of normally high payables leverage.

While that had a positive near term impact on working capital. We also saw really choppy and stocks, which isn't how we want to operate under normal conditions in 'twenty 'twenty. One we're planning for full shelves and better in stocks, which will bring inventory turns and payables leverage back down to more sustainable levels.

This will require a net investment of working capital for the year.

Similarly, as I mentioned earlier, we're leaning in to support a strong set of growth opportunities over the next few years as we accelerate investment in stores supply chain modernization and replenishment capacity in support of those growth prospects well likely see an increase in the invested capital portion of this metric over the next few years.

Bottom line, while I believe this metric will stay very healthy and compare favorably to other retailers I expect we will move back down into the 20 per cent range over time.

This would represent very strong absolute and relative performance on a larger asset base than we've maintained in the past.

So as I get ready to turn things back over to Brian I want to take you back to this meeting four years ago. When I was listening from our headquarters in Minneapolis.

During my career at target I've been lucky to spend time, working with our stores and I have developed a deep appreciation for the value they can deliver.

So when Brian and John stood up and said we'd be investing to put our stores at the center of everything we do including both digital and physical shopping I had a ton of confidence in that plan.

It was a plan based on carefully listening to our guests. It was differentiated and we were fortunate to have the necessary resources to get there.

In the years following that meeting our team worked hard and we encountered many doubters, but we continued to invest with a long view and last year's results showed the value of that focus.

And as we sit here today, we remain committed to making future investments with that same long view, rather than sitting back taking a break and waiting for the virus to subside. We are focused on playing offense and investing in continued growth.

And just like four years ago, my confidence in the future starts with the team.

So I want to acknowledge everyone on the target team from headquarters to our distribution centers to our stores in all 50 states in our offices around the world for their dedication to our guests and passion for taking care of each other without you. We couldn't have delivered such an amazing amount of value on behalf of our stakeholders in 2020 and.

And with your help I'm confident we'll continue to deliver long term value for all of our stakeholders in the years ahead.

I can't say it enough. Thank you. Thank you.

Thank you.

Now I'll turn it back over to Brian for some closing remarks. Thanks.

Thanks, Michael.

As we wind down today's event I'll leave you with a couple of thoughts.

Five years ago, we envision a future for ourselves.

In which the key to guest preference and break out growth play and an unappreciated omni channel asset called the store.

Many were skeptical, which is why we said from the beginning that we were playing our own game and creating a category of one.

Many thought the inevitable drift was for a store guests to become digital guests.

And that the current only ran in one direction.

We saw something different.

We saw future in which even the most committed digital only guess would find the best and easiest shopping experience at target.

Of how we connect that experience to our stores.

We knew that to make our source function for the future that we envisioned we'd have to build acquire and bundle a unique set of capabilities.

The technology the supply chain inventiveness.

The physical assets and operations.

And the team of trusted neighbors that millions turned to for friendly service and a bit of everyday joy.

We began to put all those pieces together like no one else had.

And the experience was taking hold on the timetable we expected.

Then twenty-twenty accelerated everything.

And today target is and synonymous with same day and safety as it is with style and swagger.

That is a very strong position to be in.

And here's where we intend to go with it.

First we will continue to focus on market share over the long term.

We believe our experience, including our fulfillment options inspiring assortment.

Is safety and personal service will convert more and more consumers into guests.

And we'll also work tirelessly to engaged established guests across more of our channels and offerings.

With new guests choosing target and established guests engaging with more of our platform.

We will be able to listen to them even more closely.

And capabilities like drive up shipped and circle will give us a wider window than ever into their preferences.

Meaning we can further improve the experience we provide in the near term while continuously anticipating where we should go next.

Staying closely connected door against always points us in the right direction.

That's what helped us see a future five years ago that today is a reality.

And it's why we're stepping up our investments to drive additional profitable growth.

Unlike in recent years, when we needed shore up our foundation or create new capabilities.

Today's investments will build on an omni channel target platform that is already working incredibly well.

A platform that is raised expectations not just among target guests, but the consumers across U S retail.

You can meet those expectations like we can because what we've created is based on a unique combination of differentiated assets.

But this is just the beginning of our story on which we'll continue to iterate innovate and continuously improve for our guests.

So in closing I want to express my complete confidence in this company future.

I'm confident in our strategy.

And in our capabilities.

And above all I'm confident in our team.

They know that no platform succeeds without purpose.

And then our ambitions are always informed by the millions of families. We serve.

The results were sharing today.

And what we envision for the future.

Simply wouldn't be possible without the best team in the business.

And I want to thank them once again for all they do for target our guests and communities.

Finally, I want to thank you for joining our financial community meeting.

We appreciate your interest in target here.

Your engagement in our journey.

And your long term investment in a growth horizon that we believe will remain bright for years to come.

We look forward to hearing from you in the Q&A portion of our program.

And I'll turn it back to John Hulbert to move us into that discussion John Thanks.

Thanks, Brian before we take a short break I want to pause and review logistics for the upcoming Q&A session for.

For those of you planning to listen in but not ask a question. During Q&A you should simply stay on this webcast and you'll hear this session in a few minutes how.

However, if you received our conference call invitation and you plan to ask a question today, you'll need to exit this webcast and dial into the conference line provided on your invitation once you're on the conference line. The operator will provide further instructions, but again if you are planning to access the Q&A session in listen only mode. Your best option is to stay on this.

Webcast, even if you received an invitation with that we'll pause for a few minutes to provide ample time for conference call participants dial in and begin the Q&A session. Shortly thank you.

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Ladies and gentlemen, thank you for standing by welcome to the target Corporation 2021 financial community meeting Q&A session Conference call.

If you want to submit a question during the Q&A session you will need to press star one on your telephone as a reminder, this conference is being recorded Tuesday March 2nd 2021, we are now ready for our first question from Chris <unk> with J P. Morgan you May go ahead.

Thanks, Good morning, Amir 'twenty, one question and then I have a follow up on a longer term question.

In the SG&A outlook on our math you have about a $1 billion.

Related to Covid costs, such as special bonuses and cleaning while you raise to $15 an hour in mid year to what extent are you. Assuming these costs are tailwind in 'twenty, one and can you quantify how significant the operating expense related is related to investment that's pressuring SG&A dollars.

Sure I can take that one first Gregg.

When you think about it.

Through the year, we'll be annualizing, the move to $15 and there'll be some one time things that don't repeat we think about like buying plexiglass providers you only do that one.

The final story in SG&A will be written by what our sales out from a price too we've got a lot of leverage within the model to continue to bend the cost curves and the direction, we like throughout SG&A. The benefit of the volume growth that we've seen us that that helps us get more and more efficient on how we can build that volume.

So then does it mean that.

Sure.

The SG&A rate coming back up it's more of a bet and embedded sort of negative top line outlook.

No I wouldn't think about it that way necessarily with SG&A, we expect that our SG&A rate will be lower than 2019 us rate net benefit of the significant scale that we have gained since then.

If you zoom out I think theres going to be a lot of movement between the different levers within margin in SG&A and so that's why we've tried to give some of our best thinking on the operating rate in total and so wide range not every meeting I would sit here and be describing a one point GAAP and operating margin between the incredibly strong six that we had in 2019 in the seven we just put us.

Often the whole range is in play I think it's slightly more likely we're in the bottom half of that range. When all the dust settles from the top half, but we're going to have a lot to learn throughout the year based on where we ultimately.

Understood and then longer term and bigger picture and we still talk about show rooming with best buy.

Wondering what the organizational start change share.

Onshore bromine is versus National brands, you launched Apple and now you have <unk>.

Whats the thought change here and what does it say about the willingness to take on more national brands in the apparel space, where maybe the brands need to replace volumes from the mall and as the bar higher here in terms of what those brands will need to bring to get into the target store.

Yes, Chris It's Brian I think one of the things that we underscored throughout the pandemic has been the strength of our stores.

And despite many of American really avoiding public places.

We've seen very strong store comps.

Obviously in excess of 7% and we saw very solid store traffic. So I think we've continued to build trust and I think coming out of the pandemic our stores, we're going to be.

Continue to be very relevant very important I think they go far beyond showcasing.

Our guests are inspired by shopping our stores day in.

Enjoy browsing they enjoy seeing the combination of our own brands and National brands and now I think we just punctuate that further with the addition of brands like Ulta beauty Levis the expansion of Apple the work that we've done throughout the year to create a showcase of owned brands and national brands and continue to invest and build.

Being a trusted and safe shopping experience so as we think to the future.

Stores are going to play a very important role, it's going to be a place where our guests enjoy shopping each and every day and I think theyre going to continue to enjoy our multi category portfolio for years to come. So we are continuing to be very bullish on the world stores play.

And I think these new national brand partnerships, only accentuate the importance of stores and drive future traffic to our stores.

Sure.

Thanks, and best of luck.

Thank you. Our next question is from Karen short with Barclays. You May go ahead.

Hi, Thanks, very much and I also had a kind of 'twenty. One question and then a bigger picture question. So trying.

SG&A question, a little bit differently, if I look at what I think youre COVID-19 costs were in expenses, where in 2020. It was north of 1 billion and I think I calculated around $750 million in wages for the two quarters in the back half of 2020, so in theory that would it.

Ply you lose about $1 billion in SG&A.

Dollars.

In 2021 is that the right way to think about it because that definitely gets me closer.

7% on the operating margin.

Depending on sales.

Karen.

Yes, similar to the answer I gave Chris I think theres going to be a lot of moving variables through the gross margin and SG&A lines and to get overly precise today about where any one of them.

Then I think it would be a bit of an exercise and false precision the biggest factor versus a couple of years ago on the SG&A line, it's going to be the benefit of scale and we can put that to use in so many ways across the business and we've got a long history of investing in our team that was a big part of the journey, we embarked on in 2017.

Attracting and retaining the best team in retail.

<unk> of our strategy for the last several years and we continue to put the team at the forefront of this year and that will continue as well.

Kevin I might as well take the guidance question upfront and kind of remove the bullseye for Michael just again, no pun intended but as we sit here today I think we all recognize this is a very uncertain environment.

We're still speculating around what's going to happen with the economy.

Endpoint rates start to recover.

The trends are encouraging right now with the buyers were all battling COVID-19 each and every day.

While vaccine distribution is accelerating millions of millions of Americans are still waiting for their turn to get that vaccine.

Still wondering when children go back to school and when we'll return to the workplace. So we approach guidance recognizing there's lots of uncertainty, but I'll go back to the fact that for most of the last year, we havent provided guidance, but we have focused on execution and I think our team has proven to be very flexible very agile.

We've responded to the environment and we've been focused on delivering a trusted and safe experience for our guests whether they're shopping in our stores or online.

That focus on execution will continue in 2021, and I wouldn't confuse guidance or the lack thereof, with our confidence to continue to take market share and outperform in the coming months and years. So I recognize the frustration of not being more precise, particularly on the top line as we think about sales.

But I can guarantee you our entire leadership team and every part of this organization is focused on retaining and growing market share no matter. What the variables are we have to face so I recognize and we'd certainly like to be in a different position today, providing more precision but.

What I can tell you is we're going to continue to execute our strategy leverage our capabilities, our owned brands and national brands, our multi category assortment and our team to continue to build on the momentum we gained in 2020 leverage the additional $15 billion of revenue we now have.

Inside of our P&L and continue to build on the market share. We gained in 2020 and make sure that's very sticky for years to come but I recognized for all of us you'd love more precision around market share you'd love some more topline insight I can tell you we're off to a very strong start in February.

Our comps in February started with a two handle and that's a 20 comp in the first part of the year. So we'll see how that plays out in March and April, but we're off to a strong start we took significant market share in the fourth quarter. If you recall our comments in earlier meeting we talked about the fact that in the <unk>.

Three quarters of the year, we picked up approximately $6 billion of market share.

We added another $3 billion of market share during the holiday season, where all of our competitors or operating so I think the vibrancy of our model our ability to execute is something that I would ask all of you to focus in on and I recognize you've got to do that in light of the fact that we haven't provided the precision that we normally do with us.

Time.

No I appreciate that thank you very much and I just wanted to ask a bigger picture question with respect to the partnerships that you've announced what is the gating factor on an accelerating or not accelerating some of these partnerships at a faster rate I mean, you've obviously given us the number of remodels that you've done and I'm sure there.

Not all.

Our primary target for some of these partnerships, but it seems like you could move a little faster on those so a little color on that would be great.

I will go back over time and think about the work we've been doing for the last five or six years, we always start by testing and learning.

I think that again listening to our team iterating, along the way validating our assumptions both from a sales standpoint, and a financial standpoint before we accelerate it's the same approach we've taken with remodels over the years and.

New small format it's us.

Same approach, we took to pick up and drive up and we're doing the same thing as we think about partnerships with great partners like Apple and Ulta Beauty you wanted to test and learn make sure we get the model right and then as we've demonstrated in the past we will hit the accelerator and make sure we expand and leverage scale as quickly as possible.

Great. Thanks, very much and congratulations on a great year. Thank you.

Thank you. The next question is from Edward Kelly from Wells Fargo. You May go ahead.

Yes, hi, good morning, guys. Thanks for the color today.

Maybe just one on.

'twenty, one and then also a bigger picture.

So on the <unk>.

Margin.

Can you just provide a bit more color on the.

21 gross margin settling in a little bit below 19 is that just simply a function of digital growth getting ahead of sort of potential offsets.

Merchandising and then how are you thinking about the gross margin outlook beyond 'twenty one.

Sure the biggest factor in 'twenty, one was the supply chain and digital pressure of about 110 basis points of pressure on the year from that.

But I think that's actually a good place to illustrate some of how we think about rate because to me. It's all about the dollar impact not the rate impact and digital is a perfect example.

If you would have told US we could double the digital business and only see a 110 basis points of pressure last year I think we all would have taken that outcome, but more important than that we're growing digital we're deepening our relationship with GAAP.

Great things happen in aggregate to us when that occurs and so sign me up for more digital growth going forward, we know that the behavior that'll be sticky because what comes with that in addition to a little bit of rate pressure on the margin line, it's hugely accretive sales benefits in total.

And so the biggest driver in 2021 for sure and I would welcome more digital growth going forward and we expect that's the place where we're at.

We will continue to excel.

Okay, and then I just wanted to follow up with a question on on shifts.

Can you provide us a bit more color on what you've seen this year from Earth's best share from.

Membership trend standpoint retail.

She'll partnership growth.

And then taking a step back.

What's the competitive synergy of owning this business for us utilizing as Melissa.

It was a third party provider I think there was.

Potential to unlock value from something like shift would that be something that would interest you.

John you want to talk about share.

Yeah sure so good morning.

We were incredibly pleased with ships performance over the past year the gain market share very strong.

Results for the business, serving our retail partners and just as important and then I'll come back to this has shifted to become an integral part of target and our fulfillment same day operation. So incredibly important there, but I think the team down in Birmingham didn't outstanding job. This year, just scaling the business right. They doubled the number of shoppers.

We talked about how the target sales on shipped grew by 300% memberships grew by 130%. We continue to add great retail partners like best buy bed Bath, <unk> beyond <unk> and several local and regional groceries and so they've done just a really great job continuing to scale that business.

I think when it comes to shift and obviously the relationship with target.

Incredibly important part about our same day options and you heard US talk all morning today about the key lever that having net suite of fulfillment same day fulfillment options for our target guests has been over the past year and really over the past several years and we will continue to be in the future not only us at the preferred way our guests continues to grow with us.

But they are also economically advantaged and so we see we continue to see huge opportunities for ship to continue to work directly with target.

To continue to fulfill our guests' needs. The other thing I would say is we see very.

Very similar to drive up when our guest engages with shipped through target again, we see growth in our sales in store and online on the target platform as well so they get more engaged with target that is hugely valuable for us. So we bought that capability three years ago thinking. This is what it would be it would be incredibly important for us from a same day perspective.

It has only become more so has that accelerated through 2020.

And I'd just go back to a point that we've made a number of times, our most valuable guests.

Against the us utilize us all of our assets.

Shops in our stores Leverages order pickup.

It is drive up when it's convenient for them and also more and more leverages the benefits of a personal shopper free ship. So we think that continues to be the easiest place to shop in America, having all of those assets available for our guests is critically important and we think those are going to be very sticky overtime.

Those guests, who utilize drive up and shipped during the pandemic, we think theres going to be a lasting connection to those fulfillment options as we go forward in 2021 and beyond.

Great. Thank you.

Thank you. The next question is from Ed you room up with Keybanc capital markets. Please go ahead.

Hey, good morning, guys. Thanks for taking the questions I guess first you were.

We're pretty early on in raising wages do you think that having a premium relative to some of your competitors is important to kind of keep the customer service level high I guess I'm, just asking that because it does seem like the industry of wages are moving up.

Kind of a longer term question you guys have done a great job of differentiating your software and your hard line based on design.

I guess as you think about food, particularly fresh food how do you think you can differentiate and grab share.

And I'll go back to the commitment we made at this meeting in 2017.

And John Mulligan and I laid out our strategy for the company and talked about the billions of dollars of capital, we would invest in stores and remodeling stores and building new stores and building out our digital and fulfillment capabilities at that time, we said the most important investment we are making within our team and I think the.

We have seen in 2017 and 2018 in 2019 and 2020 is a byproduct of that commitment to our team.

Investing in wages and benefits investing in training and career opportunities and.

It's allowed us to build the best team in retail that day.

Incredibly engaged that's focused on taking care of our guests, but also taken care of each other and our team was really the star of 2020, they stepped up during the pandemic and made sure we created a safe shopping environment.

As we scale drive up and saw growth rates of five or 600% day flex and we're able to meet the needs of again. So I think the fact that we've taken a leadership position with wages investing in our team provided them the opportunities to grow their careers that us.

A hallmark of the commitment we've made at target to creating the best team in retail and I think it has provided great returns on investment for shareholders. So we'll continue to make sure we invest in our team Jerry.

Question around design the investments, we've made in food and beverage.

Didn't gather us off to a tremendous start.

Multibillion dollar brand in a short period of time.

Been well received by our guests great quality at a great value and I think it simplifies the things we do with our own brands and we're very excited about the momentum we had food and beverage we took significant market share throughout the year and against that certainly recognize and appreciate the good and gather brand so.

We think thats a way for us to continue to differentiate our offerings and as John mentioned, we will continue to add fresh products to our drive up assortment and pickup assortment throughout the year, providing against access to more of those products as they are looking for each and every day.

Thank you.

Thank you. The next question is from Scott Myshkin with RFID capital you May go ahead.

Yeah.

Hey, guys. Thanks for taking my questions Good morning, Scott.

So I think the.

The first question I has it really more I guess strategic structural.

Just looking at the growth rate of your fulfillment costs just generally.

Is that going to be able to go below the gross rate of sales conceivably or conceptually.

Got it I think on fulfillment costs.

We continue to make progress on our fulfillment costs to cash first at each individual fulfillment service, we continue to lower the absolute cost of providing it so order pickup to day drive up today shipped per day ship from store all of those are cheaper than they were two years ago. So we continue to see our cost come down there.

The way, we see our cost come down as total mix.

Drive up order pickup and ship all have much better economics, as we've said for years and shipping from the back of our stores, which also has better economics that shipping from our fulfillment centers.

So we and they are the fastest growing portion of our portfolio. In addition to that ship from store goes much faster than fulfillment. So we see favorable mixed as well. So we continue to be really pleased with the.

Progress, we're making on the unit economics of shipping or delivering goods fulfilling goods to our guests.

I might add to that is I mean, John talked about the power of having the stores at the hub of that fulfillment.

Equation that helps all those marginal economics.

But also important not to forget is the thing that matters. Most economically with digital is the growth in guest spend in total as they become those omni channel guests have a deeper relationship with target overall and so anytime we're looking at the slice and dice in the P&L by channel, which we do a lot of us and we've made a lot of progress getting more efficient over time.

That always has to be stable to the greater impact of that greater guest spend in total as they use more and more of our digital fulfillment services Scott one of the examples we've shared over the last year is that.

The target guest that is now using drive us actually spends more money in store day.

And that relationship. So we can look at the economics fulfillment noted by fulfillment note, but its really how it all comes together and how we deepen relationships with our guests get them to use all of our assets and utilize both stores and digital fulfillment channels over time, so as John said, we're going to continue.

Improve the economics of each one of those capabilities, but it's really that sum of the parts and that deeper relationship we build as our guests use more of our fulfillment nodes over time.

I appreciate it I appreciate that answer I mean, as a follow up.

To what you guys were saying I mean, obviously Amazon has struggled with us to write their fulfillment costs grow faster than their sales. So if we're in I think looking at it.

And kind of just as one kind of fulfillment costs.

Do you guys see a path ever for because I know Amazon struggled here too like to getting fulfillment cost to grow on a slower basis than your sales because thats, obviously, where the leverage would be able to come in if you can make that happen.

Got the place I'd start.

Is the power that the store gives us to fulfill because everything is cheaper when it comes to the store and that helps us on the cost question that you asked it's cheaper to ship a box a shorter distance from a local store at <unk> written our supply chain rails, all the way to that store same day fulfillment economics look a lot.

Like store economics to us and that's the piece to John's point, that's growing fastest and so the stores give us an incredible advantage to have advantaged cost profile as we fulfill them.

The other thing that the stores give us that has been incredibly valuable. This year is great flexibility, we've seen the ability for stores to scale to meet guests need in a way that I think probably would've surprised us. If we can go back a year end times day at all all company, but stores are so flexible, there's real power and being able to say that.

Selling piece of inventory sitting on a shelf and we can put it in a box from ship. It back we can drop it in I guess trunk via drive up they can place it in their cart on historic trip and not having to be able to see perfectly exactly how that demand is going to come but knowing the inventory can fulfill it and our great store team can make it happen. However, the guests choose us to shop.

It gives us a huge flexibility advantages well, yes, just piling on now.

The other thing I'd go back to what Michael Brian Both said, it's sum of the parts and I don't think we need any more than to look at last year to see that when the sum of the parts operate together we grew digital at an astronomical rate. We grew the store at a great rate and together we generated significant profit. So it is the sum of the parts working together that is the real power for us.

And then Michael I think talked about this today that when you start to disaggregate them you start picking at things that don't make a whole lot of sense because of the way we package the whole thing together to deliver that for our guests and the economic returns that provides for us in total.

Oh, perfect cash and hats off to you guys in the stores and everything else Youre doing what you did this year is just amazing you can do so much more volume and perform so well so congratulations on that thanks Scott.

Thank you. The next question is from Simeon Gutman with Morgan Stanley You May go ahead.

Hey, Good morning, everyone. My first question I wanted to ask I guess longer term question on margins.

Sort of.

Outside of 'twenty, one so I know 'twenty, one there's not a lot of visibility, but I know the conversations we have about margin is more about their outcome and youre not managing to a particular margin.

Beyond 'twenty, one is there anything that could hold margin back in terms of some of the investments that you have planned for the out years.

Thanks for the questions and then when I think about margins in the long run the straw that will stir that drink sales growth and we're incredibly confident in the way we are positioned to build on the deepened breadth guests trust at the beginning of this year with long term sales growth you can see the power of leverage in our model and an exam.

<unk> way in 2020, no doubt, but that's the focus of where we're investing going forward is to continue to gain share and grow the top line because that gives us a lot of levers to fall below there on the margin line.

The other thing that we've talked about periodically is the importance of mix in our business and over time, our multi category portfolio is a huge asset.

Cristina it's been obviously in our merchant share for a number of years and understands the importance of Bally.

Balancing our multi category portfolio the balance between our owned brands and National brands and as John and Michael will talk about periodically as we think about the future from a digital standpoint, we think that's going to continue to move more and more towards same day, which from a mix standpoint is very advantageous to us. So I think our outlook for margin.

The long term is very bullish as we leverage our multi category portfolio, we continue to build our own brands as well as great National brand partners, but as we continue to see again take advantage of.

The speed and convenience of same day digital fulfillment all of those things add up to a very healthy mix management and margin control.

Great. Okay, and my follow up is on the $9 billion of share that you gained in 2020.

I saw it was one of the pillars in that pyramid that foundation can you talk about how youre thinking about retaining it anything more in terms of you know are you, you're hoping to keep 100% of it and build from it.

Can you share a range of outcomes in terms of share retention and then anything on the categories.

That you think you can make the most headway with in 2021.

I'll come back to we saw really strong share performance against our entire portfolio in 2020, and net continued in the fourth quarter and we expect to continue to be in a strong share position in 2021, obviously that we're still sorting through what the overall <unk>.

History performance will look like category by category as we think about 2021.

I'll, let christiana comment on some of the early observations that we have us we think about the strength in our own brands. Some of the newness that we're bringing to market the new national brand partnerships and the great investments, we have with both our own brand and National brand vendor partners. So I think were well positioned.

And to continue to grow share and I think the investments, we're making in our stores and the store experience and in digital positions us well to continue to grow share for years to come.

Yes, I might add a few points there, but it really punctuate, what Brian said us.

The multi category portfolio that we have gives us so much flexibility and if we follow the guests.

We will deliver.

When the guests chose not to really change their order very much in.

Yoga pants, all year it had an impact on the apparel industry, yet we significantly outpaced the performance in that industry. This year people are going to buy new clothes people don't want to wear the same thing over and over you'll see us their makeup they might even buy a piece of luggage if theyre entering Adam.

And that ability to flex with the needs of the GAAP to the.

Breadth of our portfolio is what's going to keep us growing share and gaining against the industry first accounts.

Great. Thanks, and congratulations thank you.

Thank you. The next question is from Stephanie Wissink with Jefferies. You May go ahead.

Hi, This is Corey Grady on for Steph Wissink. Thanks for taking my question I wanted to follow up on the February comp comment how much of that strength would you attribute the stimulus and can you compare the impact of this round on what you saw last summer.

We've spent a lot of time trying to sort through some of the factors behind that again I think so much of it has been the investments we've made in safety and the shopping experience throughout the last year. We certainly have seen cash up all of our categories in the month of February so broad based strength.

And I think again.

So against us responding to some of the newness in our assortment and 16 US point Theyre looking for the opportunity to shop, our stores and find new items. They are tired of the yoga pants and really appreciate some of the new assortment. We have in apparel there are still shopping for their homes as they refresh the core they're still eating at home so kitchen.

And food related items are still really important so we see against shopping all of our categories, taking advantage of both stores and our digital channels and I think it's a byproduct of the investments we've made throughout the pandemic to build for us to make sure. They know we've got a safe shopping environment and the great work that our teams have done to make sure that they are.

Every day on meeting the needs of our guests.

So very encouraged with the month of February and will continue to make sure we stay agile and flexible to meet the needs of the guests throughout the next day 11 months.

Thanks.

A follow up I wanted to ask about your inventory position, where do you stand on in stock positions. Today are you seeing any gaps that you feel you need to remediate in the near term.

Christina.

We were very pleased with our inventory position, we continue to build and support of sales and the reality is that we are.

We're looking to fill in the gaps where we have a few selectively but it's been a marked improvement throughout the year and the responsiveness of our team is incredible and we have not only a very.

Free responsible supply chain team here in the United States, but across the whole world that Intel and insight allows us to manage a very complex supply chain with efficiency always a focus of getting.

Our out of stock from the best position possible.

Free and opportunity that really thank our vendor partners, who have been very responsive to meeting our needs. Obviously no one anticipated the kind of comps we were driving in 2020 I talked about the almost historic number we delivered in January and our vendor partners have been very responsive working with our merchants and supply chain teams to ensure.

We are filling some of those gaps and have the inventory we need as we go forward.

Thank you.

Thank you. Our next question is from Paul Lajoie with Citigroup you May go ahead.

Hey, Thanks, guys.

So when you look back on <unk>.

'twenty, how many new customers were new to target and how does that break down versus when you acquired them first half for a second half is there anything you can share in terms of the patterns that you saw in terms of those gained in the first half how did they spend in the second half maybe talk about the frequency and spend in their purchases.

Sure I can start thanks for the question Paul Bob.

But as we think about new customers no doubt there are some new customers to target. This year, we shared some of the digital guests that we are gaining in past calls the thing that we're most focused on is deepening the relationship of those guests.

Really stepped up their trust and their spend and their share of wallet with target over the last year and so we've talked about.

12 million, new omni channel guests this year.

It's the place where we focused a lot of that kind of a deepening of the guest relationship and the and the things that we're tracking on Brian.

Encouraging to see the stickiness of a lot of the new behaviors that were tried in 2020, so things like drive up.

Thanks to the incredible experience our store teams provide once guests trial drive us try us service like that they come back and we have seen higher rates of stickiness this year than historically for some of those digital fulfillment services.

That bodes well for the stickiness of those guests in those behaviors going forward and so while we do watch new guests and it's great to get a new guest and convert them to a deeper deeper target guests over time, a lot of America shops target in the space.

Deepening of those existing guests as they shop us in new and different ways and more often that's our focus yes.

Paul the only other point I would add us as we've looked at the guests during the pandemic, we know theyre consolidating where they shop and we never had a target guests that was shopping for home or beauty. Other now shopping for apparel picking up food and beverage exploring new categories. They may be coming to us for electronics and toys.

So the Michael point, while most of America shops with target during the pandemic, we've seen consumers consolidate the number of places where they shop. They are now experiencing and are active in more categories and we think that provides lasting benefits for us for years to come.

Operator, it looks like we've got time for one final question today.

Thank you. Our last question is from Joe Feldman with Telsey Advisory Group you May go ahead.

Hey, guys. Thanks for taking me through this last one.

One of the kind of.

Continuing on that train of thought Brian with <unk>.

Regard to you know customers come in for one thing they shop for others. What are you guys doing from a data analytics standpoint, and to really stimulate the customer to buy more items beyond what they normally buy and I was just curious where we're at in terms of the data analytics and.

Leveraging the data to really hot.

Harness it and make it make it more useful.

Joe obviously, it's been a big area of focus for us for many years. So I'll come back to something we haven't talked about a lot today, which is the membership within target circle.

Moving up 90 million members in target circle, which gives us an understanding there.

Their needs their wants how they're shopping new categories and new items, we can introduce them too. So we're going to continue to make sure we leverage target circle to build deeper relationships introduced that get new categories, new fulfillment options and over time, we think thats, a very valuable asset that will continue that.

Drive growth help us build market share and continue the momentum that we established in 2020.

So with.

With that I want to thank everyone for joining us today, we look forward to seeing all of you in person in 2022, and obviously, John and Michael will be available for any follow up questions today or over the balance of the week. So thank you for joining us and stay well.

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