Q4 2021 Target Corp Earnings Call & Financial Community Meeting

We're setting new starting wage wages of 15 to $24 per hour.

<unk> target as a wage leader in every market, where we operate.

We'll also provide broader faster access to health care for hourly team members.

Making nearly 20%.

Of our team newly eligible for benefits.

And reducing the waiting period for all hourly store key members to enroll and target medical plans.

You can count on us to keep leading with investments like these.

But to really appreciate where we're headed as a company.

I want you know not just what we're investing in but whom.

I'm thinking of Gen Mayor.

Store director of T, 12, 35, and Hudson, Wisconsin.

Jen started as an intern 26 years ago.

Since then she has gone onto lead stores for target.

In Iowa, Missouri, Indiana and Minnesota.

In the two years since you moved to Hudson.

Store sales have increased.

By 30%.

You'll hear about chain wide figures like that from John .

<unk> is a proof point to that trend.

Shortly after she started in Hudson.

Jen oversaw the introduction of drive up.

Right at the start of the pandemic.

And in two short years.

Our stores rocketed up to the top 75 for drive up.

So the store performance is strong.

But that's not what caught my attention.

Instead, it was a speech I one of Jim's team members of.

A 27 year old name Lindsay.

One of the thousands of team members, who joined target in the pandemic.

In front of a black tie Gallo last fall Lindsay related how she was devastated after losing our previous job during the Covid lockdown to 2020.

Here's what you had to say.

It is I'm privileged and honored to tell you high became a target team member my target story is one of inclusion and acceptance.

As we know when the pandemic happened and businesses and people were affected everywhere.

Home crying about being laid off from my job and meeting as scheduled.

I needed and needed to work I like to shop at target So I thought.

That would be a good place to work that.

All of my own I have that updated my resume and sent my application and I didn't do my mom.

At this time she wasn't in my interview either like she was in the past 45 minutes into the any of you and telling them that I had to be honest I have lots of them. They said thank you for sharing welcome to target.

No one who knows Jen or her team would be the least bit surprise that they hired lindsey on the spot.

Lindsey has had a great development experience in the store is doing well and appreciates our extended target family.

Jen speaks for the company when she says it's important to give everyone opportunities.

In our 20 years as a sore director cheese moved hundreds of team members from part time to full time.

She has developed and promoted dozens of team members to leadership positions.

She has helped them cope with trauma overcome.

Overcome disparities build skills.

And save for the future.

She speaks boldly for our culture when she says.

I ask myself.

What would I want somebody to do for me and then I tried to do that times 10.

This is the kind of question, we asked ourselves the company all the time.

What can we do.

With our resources.

With our strategy and plans with our team and culture.

To serve the world around us and a bigger more beneficial way.

So as I hand off to our team.

I'll ask you to keep that story in mind.

Jim <unk> will be the first to tell you. We're just getting started there.

But you can't equate accelerated returns with exhausted ones.

Her store with those strong results.

Hasn't even been touched by a remodel.

Starting in April 2012, 35, we'll get at Ulta beauty and a Disney store.

We will significantly increase the size of our grocery footprint and add a dedicated entrance for drive up and order pickup given the volume of same day services.

And the growth from this remodel will spur Gen store even higher.

It'll combined with thousands of comparable examples countrywide.

To bring more joy more equity and opportunity and even more growth.

Both financial and societal terms.

To our stakeholders here and around the world.

Christina.

Thanks, Brian .

This morning, I'm eager to give you a peek behind the curtain to answer the question. What's next for target and the short answer is a lot.

I'd like to share with you a deeper look into the growth framework, we use to drive our strategy forward.

With a four to five foundation and the deepening level of trust, we have established with our guests we're continuing to build what's working strategically on making smart choices to launch new initiatives.

While I plan to spend most of my time today sharing our specific strategies and the lens through which we view them, let's first acknowledge what enables the execution of these strategies in the first place.

Our team our operations and technology.

The investments we've made in these areas will empower everything will share today.

In fact, they are increasingly becoming differentiated growth drivers in their own right and they propel our purpose to help all families discover the joy of everyday life.

And at the center of that purpose you see our guests.

Everything we do should be rooted in a deep understanding of what our guests want along with empathy to understand what they need.

Our culture to care grow and win together, coupled with our core values of inclusivity connection and drive.

To support our purpose.

Without them. Our purpose statement is just words on a page.

It's only when we're aligned and who we are what we care about and how we drive forward together that our purpose comes to life.

Here's a recent example.

One of our guests Nicholas recently lost his sister to cancer one of his family's most prized possessions with a photo of its sister in an open house picture frame that she gave to him before she passed.

One day, the frame fell and shattered.

Unable to find a replacement Nicolas reached out to us with a plea for help.

The frame Unfortunately was no longer in production, but the owned brands team track down two remaining France, which they sent to Nicholas and his wife complete with handwritten notes of sympathy and care and the target team.

Nicolas shared with the team I know, it's just a frame, but theres a lot of meaning behind it well you did may seem small, but it represents so much more.

This is just one example of how our team continuously shows up living out our values and putting care first.

I am so grateful for their unwavering commitment to our guests and the communities they serve and each other.

All in service of our purpose.

So now let's go deeper into each of our six strategic pillars distinct interwoven aspects of how we intend to grow.

They represent core ideas to create forward motion for our business and help define the sum of the parts that is uniquely target.

Let's begin with one of the most iconic differentiators at target our brands.

Through a careful balance of exclusive owned brands and industry, leading national brands target differentiates by Curating, a unique assortment driving preference in a crowded retail landscape.

We build guest affinity through our flagship brands like good and gather all in motion cat and Jack and threshold we've.

We've also continued to innovate with new brands, such as bright room targets first dedicated storage and home organization on Ram and.

<unk>, our first pet food brand with premium ingredients and no artificial colors flavors or preservative.

Through our World class design and sourcing functions, we are able to develop and produce product at.

Incredible quality and value.

Always a focus for our guests.

But never more so than in an inflationary environment.

To illustrate the scale of our own brands in.

In 2021 alone target sold more than 330 million units and cat and Jack equating to nearly seven items for every child in the United States under the age of 11.

And even though these brands are already baked there are still growing.

In fact target's own brands grew 18% in 2021.

And at more than $30 billion, our own brand sales alone now rival the size of some fortune 100 companies.

But as we said before it isn't about owned or national brands.

Harmony created between them is part of what makes target unique.

Our recent progress in denim serves as a perfect example.

Years ago, we recognized a vast opportunity to elevate denims rollout target stemming from considerable guests in market research.

So when universal thriving Goodfellow launched both featured extensive new denim offerings, including a variety of styles and inclusive sizing all at sharp price points.

The guest reaction was to the quality and value was fantastic.

We further rounded out the assortment by deepening our partnership with Levi's, which continues to grow.

All told the interplay between our owned and National brands has reinvigorated this category, bringing us from a retailer that sold them to a denim destination, having grown sales in this category by more than $150 million since 2019.

And Levi's isn't the only growing partnership at target for.

We're also deepening our relationship.

With leading National brand partners like Disney Apple and Ulta beauty.

Bryan touched on the strong results, we're seeing with our first 100 Ulta beauty at target stores.

We entered this partnership knowing our guests were looking for prestige beauty brands and industry, leading expertise and that's exactly what these new shops are delivering.

In stores, where we've added an ulta beauty experience.

Yes, Sir by incremental items from the Ulta beauty assortment, while continuing to shop, the beauty brands they loved at target for years.

In fact, these new spaces average more than two times the productivity of the rest of the store and the growth is proving to be incremental.

Specifically in stores that have added an ulta beauty section, we're seeing mid teens lift across total beauty and productivity lifts in complementary categories as well.

We these incredible results, we remain committed to operating at least 800, Ulta beauty target locations over time with.

With plans to add more than 250, new locations in 2022.

At target, we pride ourselves on the level of service and shopping experience, we provide as John and Mark will share in more detail, we've made meaningful investments and progress in the store shopping experience over the past several years.

So I'll focus on our opportunity to grow our in store services.

Target has long been a destination and escape largely because of the differentiated experience we provide.

In store services are one more way, we can make life easier for our guests helping them to accomplish more in a single trip to their local store.

Years ago, we began our partnership with Cvs health to provide pharmacy services in our stores and they continue to deliver exceptional care and expertise today.

This not only benefits our guests to fulfill their prescriptions in our stores, but also consolidates another trip simplifying their lives.

Similarly, we provide convenient well established optical services, which we have at more than 500 of our stores and growing.

Yet, we still have an opportunity to do more.

Let me share. An example of a recent pilot we plan to scale.

In 2021 target began testing ear piercing at several Minneapolis based stores.

Our research found that guests, we're looking for a reliable safe and convenient place to get their families ears peers.

So we created a joyful and differentiated experience, making us the first and only national retailer to offer ear piercing performed by a licensed nurse.

This service helps us connect and celebrate a major milestone with often younger guests, creating lasting affinity for our brand.

Given the success of the pilot, we recently expanded the rollout to nearly 200 stores with plans to meaningfully increase that number by the end of 2022.

This is a fantastic example of what happens when we listen to our guests.

Deeply research the market opportunities and create a differentiated solution.

Another growth pillar is our focus on affordability.

As value remains among the biggest loyalty builders in retail.

Our goal is to deliver unbeatable value by providing affordability across every category every day.

After all we established our expect more pay less promise decades ago, and we're continuously evolving what it means to deliver great value.

Given that the U S economy is experiencing the highest inflation rate in decades, the American consumer is becoming increasingly price conscious.

This is why we believe our comprehensive view of affordability, which focuses on price but encompasses so much more sets target apart from our competitors driving deepen engagement and growing loyalty.

Our guests tell us that affordability begins with price, but also includes proximity accessibility and assortment choices that satisfy any budget.

It also means receiving valuable benefits like those we offer through target circle, including exclusive promotions and deals one per cent earnings to redeem on future purchases.

And the ability to help direct targets charitable giving to the causes our guests care most about.

And the industry, leading benefits, we offer with our red card holders.

<unk>, 5% of every transaction.

Free shipping on target Dot com.

And no annual membership fees.

Over the years Red card guests have say more than $9 billion on their purchases, including more than $1 billion in 2021 alone.

Now I'd like to share a bit more a bit more about two emerging growth pillars and our framework.

While they represent more nascent opportunities they are positioned to spur incremental growth on top of our existing strategies.

The first is our focus on relevance something we long work to maintain and grow with every guest interaction.

Brian shared the compelling opportunity, we have to better harness and apply the power of guest insights.

Through this opportunity we can optimize our assortment more effectively make for more effectively make offers to our guests and most importantly, personalize our interactions with them.

We've long known that joint value, we can create for our vendors our guests and target by connecting guests to the products they want and need.

But as we continue to deepen our relationship with the guests are ability to refine and elevate this value is extraordinary and will continue to drive outsized growth over the next several years through the likes of target circle round L and target plus.

Carol will provide more detail on these rapidly growing platforms in a moment.

Finally, I want to highlight target forward the newest chapter in our long history of strong corporate responsibility at our company.

At a time when the American consumer is becoming increasingly focused on not just what they buy but also where and how the product was made how its production impacts the world and those who produce it and how companies function as citizens of a global community.

We are proud of our bold commitments to better people and the planet with every choice we make.

As we grow and continue to develop our new owned brands our target forward commitment is to design and elevate circular sustainable brands.

Of course these brands will begin with a focus on our guests, but also consider the impact to the world.

We aspire for 100% of our own brand products designed the design for a circular future by 2040.

Additionally, our teams will continue designing to eliminate waste using materials that our regenerative recycled or source sustainably to create products that are more durable easily repaired or recyclable as well.

Beyond our sustainability efforts, our aspirations to accelerate opportunity equity are equally pivotal.

While we still have far to go targets reach committee is encouraged to be leading the industry with progress against virtually every goal we have set forth.

We will continue to share specific progress over time, but I want to highlight a few examples with you today.

The first is in our beauty business, where we have increased our black owned are founded brands by 65% since 2020 and are now leading the industry with more than 70 black owned unfounded brands.

Some of these entrepreneurs learn launched through targets accelerator program design.

Designed to quickly scale brands at target.

Entrepreneur printer Cora Miller of the Blackstone hair care business Yung King hair care went through our 2020 target takeout program and subsequently launched in 365 target stores.

Given the immediate success and reaction from our guests. We now have plans to expand this line into significantly more stores in 2022.

Cora is among a group of fewer than 100, black female entrepreneurs to raise more than $1 million in venture funds.

However.

We want Cora story to become the rule not the exception.

We'll continue to elevate entrepreneurs like her through accelerated programs, including the recently launched forward founders program, which equips historically under resource entrepreneurs to build their businesses and gain access to industry, leading retail resources and partnerships.

When more than half of our first cohort comprised of black entrepreneurs, we aim to provide a launching point for many new and emerging black owned businesses.

If we've proven anything over the last few years.

A targets the growth company.

Even though we're now more than $100 billion business the opportunities for growth are immense.

We have created momentum through unique and innovative strategies, many of which began long before the onset of the pandemic and because of our durable flexible business model. We have proven we can adapt to any environment.

We will continue to play offense and accelerate these strategies, while listening to the ever changing wants and needs of our guests to ensure our playbook is a direct reflection of what they have come to expect from target.

With that I'll turn it over to Carol who will provide more color on some of our powerful growth strategies.

Hello, everyone I'm excited to be here to share our view of targets growth through our guests is because those kristina shared everything we do should be rooted in a deep understanding.

<unk> of what our guests want along with the empathy to understand what they need and how those needs continue to evolve.

And the next few minutes I want to show you, how our commitment to relevance has positioned target to deliver the most personalized omnichannel experience in retail.

In my first year, as Chief marketing and digital officer, I've had the privilege of sharing target story in many virtual fire sides round tables and interviews.

The common thread when I think about all of those times is that people always ask me how target stage three steps ahead with our guests in these rapidly changing times.

And while I am not a huge fan of giving away all the keys to success I always point to our culture of care and our core value of inclusivity that have us listening and learning from our guest deeply and continuously.

When our insights team talks with guests. We don't just asked some questions about target and their experience of shopping with us GAAP.

Yes, sure their hopes with us their fears and their dreams. This year simply what's going on in their lives.

Through these ongoing check ins every area of our enterprise has a view of the holistic human experience live by our guests during the pandemic and what that might mean for target in the future.

We also know from brand researched what matters most of the guests when they shop and connect with us ease and affordability are essential but our guests are looking for more too.

Quality and value.

Community and connection.

Inclusivity, and feeling seen what Brian called the power of and.

And what gets me really excited is how were delivering loud and proud on these personal guests values at scale.

Targets digital experience, which we have been investing in for years plays a key role here as a gateway to our guests and a huge growth driver for us our digital business has nearly tripled in the last two years and in 2021 delivered a 20% comp on top of 145% comp the year prior.

Then there is 45% comp growth in digitally enabled same day services on top of 235% last year.

And our flagship target App has moved from 30% of digital demand a little over two years ago to closing in on 70% today.

But the biggest differentiator when you look at targets digital experience. It is designed with guests at the center, we take the friction out so that guests can experience target on their own terms, which means we are guests obsessing at every touch point to stay a step ahead of evolving guest behaviors.

For example, we're leaning into the love our guests have for our digitally led to same day services because that's sticky routine developed early in the pandemic are now part of their lives things they cannot live without but they look a little bit different today.

So here is the gas to how to drive a border our highest N. P. S service, but then she was drawn inside to discover something new.

Then there's this gas who said can we just talk about the fact that you can go through target with Starbucks in hand, and then go through Ulta.

These new kinds of target runs in stock ups reflect our guests' evolving needs and wants in a seamless omnichannel experience that delivers on them.

Today target has 40 million guests and counting shopping across channels and as you've heard us share before omni channel guests spend four times as much as stores only guests and even more compared to digital only guests.

Target can bring together insights across an omni channel journey from Red card and registry to digital and in store to our call centers and every step in between which means we're getting a 360 degree view of the kind of guests that are driving so much growth.

With these meaningful insights we can make sure that <unk> magic. They love is even more relevant in their lives and the experience even more personalized.

So you can imagine what this looks like.

For one gas scrolling through the App, what she sees as curated especially for her.

Her favorite items and great deals on her go to essentials per weeknight dinners and because she told us she's a teacher it really means something to her when she sees a target circle offer that makes her classroom supplies more affordable.

She's getting ideas for what to pack and lunch boxes for her kids. This week to maybe a little something from good and gather and what's more her app experience helps make life easier as someone who might need a shopping partner once in a while that their name for a new service that allows her husband to do the target run while she's working a service that is near and Dear to.

My family's heart.

So she checks out in later that afternoon, he picks up what's for dinner.

Here's another kind of personalized guest journey that we're obsessing over.

Guests are shopping for essentials, when he sees a message from a banner AD about clorox is glad bags.

He's purchased them before but other brands to the headline benefits really resonate with him. So this time he adds glad to his car he checks out and drives up.

Purchases like this one contributed to a 40% higher return on AD spend for Clorox, and a 25% increase in customer retention over the duration of the campaign.

Let me share the backstory on this type of target run.

At the start of the pandemic Clorox saw growth in guests buying their products for the first time and they wanted to retain them. So they turned to our media company round out to measure guest values and behaviors.

You think that research round al developed a series of a b test and Clorox use those key insights to optimize messaging and audience targeting.

How we're leveraging media to know our guests better and create a more relevant and personalized experience for them is incredibly exciting.

So is that.

From its humble beginnings in 2007 with just five team members are known as online vendor marketing round al is now a 500 plus person strong fully integrated target team already delivering more than $1 billion in value for target and we expect that to grow to $2 billion over the next several years.

To sum up round out its position for continued success, because it's delivering on relevance and value. That's a win win win for target for our partners and for our guests.

Now I'd say the same thing about target plus target plus is different than other marketplaces. It's invite only with vetted partners, we have relationships with who are extending our aisles digitally.

And because of our trusted and curated assortment. Our guests are sifting through thousands of pages of results for the one thing that's going to bring them Joy in fact target plus is so seamless on the things that matter the ease of the experience a relevant assortment and the benefits of Red card and in store returned the majority of gas don't know their shopping with.

It feels like target it feels personal and the love for marketplaces, only growing in 2021 target plus grew 75%.

Let's take a look through our guest size.

In target stores, our assortment of sunglasses features a curated set of options designed to meet the wants and needs of a broad set of families.

This gas fell with purchased Goodfellow shades to keep at home at work in his car he's thinking about splurging for its upcoming vacation.

The Ray ban aviators, he's looking for online and he is over the moon about the Red card savings as he makes the purchase from our partner Luxottica.

And when he decides on a per different pair that will frame. This space, even better it's easy enough to stop by the store and let us handle the returns.

With rich insights from Omnichannel experiences, we're able to serve up even more I guess, one more suggestions of services they've never thought of more ways to support brands and nonprofits close to their hearts.

And that brings me to target circle, which I'm really excited to talk about.

So here's a lesser engage guests who joined circle through our partnership with Ulta beauty.

She's able to seamlessly link or ultimate rewards account sports circle for all of the benefits she's thrilled that she can now find her favorite skincare brand and our go to mascara at her local target store and I want to pause here for just a second Christina told us about how we're off to a great start with the Ulta beauty shop in shops, but let's recognize how.

That partnership is translating to digital and loyalty with our guests we're getting to know these guest and circle, leading to more personalized experiences that are serving up the things they crave and back to this guest other things. She may love like Wild fable. So in such a short time someone who only shop occasionally is now on a path to super fandom.

Yeah.

Circle is a way for us to deeply understand our guests and have a two way connection with them.

And then in addition to the fact that in less than three years its become one of the biggest retail loyalty programs in the United States with 100 million members and growing.

It's also one of the new ways, we're creating relevance at scale with a strategic shift from mass promotional offers to personalized.

During holiday personalized offer showed an eight to $10 lift in promotional basket size compared to mass offers and a conversion rate of 70% versus 40%.

In addition to the personalized deals curated for them and the fact that they can vote and support local nonprofits important to them I have to call out our guests love for target circle bonus.

Our new gamification platform personalizes missions and rewards members and it's already delivering big for our business, resulting in nearly $200 million in incremental sales in 2021 and as Youre hearing repeatedly today, we're just getting started.

So I've shared lots of examples about how we're meeting our guests' needs and wants throughout their Omnichannel journey, but this one stands out as a point of pride.

In the past we've run a black history month campaign for the month of February but now through our digital platforms. We've grown towards an always on deeply relevant approach. So target guests can shop in support lack on founders and entrepreneurs all year round through black beyond measure.

And Latino owned brands.

And women owned brands.

And Asian owned brands, and so many more personalized and inclusive experiences where guests feel seen and heard every day.

Here's one more let's take a look at our new spot from a brand campaign, what we value most shouldn't cost more.

Come in for work out here.

Do you feeling empowered.

Kevin <unk>.

One facility.

Because when you shop at target you leave with what you value most.

Healthy food for your family and.

And brands that lift in our community.

It targets the things that matter are always within reach.

What we value most shooting comscore.

Okay.

There's a lot of good to see here.

But it is not just what the guest sees its also about what's happening behind the scenes that makes all guests feel scene.

We're partnering with diverse content creators in new ways from production crews to onsite catering in front of and behind the camera every part of the marketing ecosystem reflects our forward values and this is so important we.

Our walking the walk in terms of our investments.

By the end of the year, we're committing 5% of our annual media spend to black on media partners and another 5% to Hispanic owned media partners.

Because equity opportunity and inclusivity are core to who we are they show up authentically and our Omnichannel experience.

And our guests are responding to that.

This guest feel scene.

In stationery, she feels a sense of belonging and inclusion when she holds a heartfelt message in braille.

And we brought him joy, let's close with his journey.

My name is Alicia and my son money is Victor goal is just the sweetest happier CAD one strong cookie two he was diagnosed with cerebral palsy at 18 mine, which is brain damage that happened at or right around the bird I can tell that he's had moments in this world where he has definitely helped.

Joan.

We were going into target to shop floor. Nokia we were just walking around you know the kids Department.

Doctoring cleaning up of the picture of that little boy in the Walker and he literally sat in a loud mom longer like me and you can truly see it in his eyes. Mr. Happy He wants to see another little boy was just like him. He felt like keep along I mean I was Brian literally.

It was Brian and target and it was just such a moment if we weren't to have a kid with cerebral palsy or a disability and you can see that photo viewing will make our company thing being that photo after having a child with cerebral palsy and being able to connect with Daimler support level just went through the roof I think target.

Inclusive marketing is so incredibly important to our family and especially Lenny just showing that everyone is included everyone different or the same and knowing alone.

So no matter, where you look in our Omnichannel experience I'll bet, the cat and Jack sign in store or online the relevant connections we have with our guests are making a positive difference in their lives within our communities and for our business and we're never going to stop now.

Now I'm delighted to introduce my friend and team member John Milligan.

Well good morning, everybody.

So I'm often asked how target continues to operate within a challenging and volatile environment, putting growth on top of growth and building trust with our guests quarter after quarter.

I can point to our agile supply chain are hundreds of omnichannel stores are industry, leading fulfillment capabilities and the operational algorithms that make it all work.

But the real key to our continued growth as our global team and all the way, they're using our resources and operations to take care of our guests.

And just the last two years, they've picked and packed four times more items for same day fulfillment.

Supported double digit store traffic gains with a safe inspiring environment.

Opened over 60, new stores remodeled hundreds more.

And moved record levels of inventory to support our growing needs of our guests.

Bryan touched on how our target team is showing up for each other and how that spirit of care starch here with our team.

And that extends to our guests and our communities.

Our team is the connection across our business and the pulse of our operation.

And I want to acknowledge their impact on hard target shows up today and how we'll continue to deliver in the future.

The power of our team is always visible in our stores nearly 2000 of them in neighborhoods across the country, serving as inspiring shopping destinations.

And local fulfillment hubs.

Although the idea of leveraging stores to fulfill online orders as widely embraced across retail today, we're on our own when we introduced the concept five years ago.

As a result, we're years ahead of others, who just started using physical stores to meet digital demand.

We know using stores as hubs will give guests more choice and convenience, while giving our operation more flexibility and capacity for future growth.

That was true prior to 2020 and could have not have been more essential since that time.

Today, when our guests turned to target no matter, how they choose to stop those stores or answer the call.

Located just miles for most American homes, our stores handled more than 95% of the $100 billion plus in sales we did in 2021.

Including 12% more in store traffic and most of our digital demand.

Notably more than half those online sales were filled through our same day services drive up order pickup and same day delivery, which shipped.

Our chief stores Officer merchant Dell will share more shortly about how we'll keep investing in those services.

They're not only offer the quickest fulfillment at the lowest cost their trip drivers, but actually deepen guest engagement with target.

And on top of it all the other fastest growing part of our business.

This past year, they grew 45% building.

Building on 235% growth in 2020.

Showing the continued guest appetite for fast and easy shopping.

With digital fulfillment growing exponentially in in store traffic continuing to rise our stores are supporting more and more volume.

And the last five years, the average stores added $15 million of sales.

Which means 40 million dollar stores have become 55 to 60 million dollar stores and growing.

And as our stores become more productive they naturally gain efficiencies, including significant cost leverage and launch lower clearance markdown rates.

So as they contribute more to our topline they further protect the bottom line.

We've said from the beginning that our stores have the capacity to support higher growth that remains true today.

Even as average sales per store have risen 30% in just the last two years.

But that enormous growth also means our operation is years ahead of where we had planned.

So we're continuing to build upstream capacity will need over time.

As we do we're investing in ways that enable growth and move us toward our target forward sustainability commitments.

From how we build and run our stores.

So the standards, we hold for our vendor partners.

As well as how we will keep taking care of our team.

We're continually strengthening in operation that supports a long future for target and the world around us.

Our investments in capacity start upstream.

How we innovate within our supply chain to deliver on the growing need for inventory in our stores.

Before last year, we hadn't added a new regional distribution center in over a decade.

Even as our total sales grew 40% over that same time period.

Rather than add buildings, we grew by investing in automation robotics and process design to improve the efficiency of our existing sites.

Of course, we'll always keep investing to make our buildings more efficient.

But with an additional $27 billion of sales over the last two years, we can't rely on that alone it's time to expand our network.

Last summer, we opened two new distribution facilities, one in New Jersey, and one in Chicago.

Today, we have four more currently in development that will open over the next few years with plans for several more to follow.

Lighting up new buildings adds tremendous capacity to our supply chain network in support of our stores and will position target to handle many more years of growth.

As we continue investing upstream from our stores, we're also innovating downstream, where sortation centers to accelerate our last mile capabilities.

These centers help us further scale, our stores as hubs strategy and create room for future growth.

The first of these facilities located not far from our headquarters in Minneapolis has been up and running for just over a year.

Before it opened our store teams would fulfill online orders palletize the packages in the backroom waiting for one daily pickup from our carrier partners.

Now target trucks collect those packages that are 40, plus twin city stores throughout the day, keeping orders moving or giving stores more room to fill even more.

The packages arrive at the Sortation center, where they're organized by ZIP code and allocated to partners for direct delivery.

Last spring, we integrated ships last mile delivery capabilities into the operation.

Ship drivers pick up a batch of orders sorted by neighborhood.

In a fast and efficient deliveries to our guests.

Even during peak season, when most orders had a standard two day promise. These packages were delivered in just over a day on average.

At the same time, the average unit fulfillment cost dropped by nearly a third.

And that's before we've added automation that will make these buildings more productive in the future.

Our Minneapolis pilot shows how sortation centers will make stores, even more efficient as fulfillment hubs and allow us to rollout a next day delivery capability at scale.

We've started to expand this concept into other densely populated markets by the end of next month, we'll have five more centers up and running from Dallas to Philadelphia with another five planned an additional metro areas later this year.

This capability isn't something we built overnight.

As a result of many strategic decisions, we've made over time working together and a model that's unique to target.

It works hand in glove with our stores as hub strategy it.

It leans on technology, we acquired and further developed from Grand Junction and to live to optimize the most efficient route for every package.

And if unlocked by integrating ships delivery capability into our last mile operation.

Our Sortation center expansion will add meaningful speed and efficiency to our fulfillment capabilities. So we can field continued growth for the long term.

Our Sortation center is designed as an extension of the stores. It allows us to be able to increase speed decreased cost increase overall capacity to deliver packages directly to our guests.

Shar Sortation center in Minneapolis in October 2020 today was to watch our overall capacity increase more than 400% growth is simply amazing once the truck arrives through our sortation centers, we make the decision whether those packages go non local locals for what we call hyper local volume, which was our last mile delivery service these packages or Dan.

Picked up by our ship partners and they are delivered to the guest home.

It's a very easy process in Poland <unk> packages, and then you had out on your way you can crank through music up and deliver and prompt delivery and drop.

On the score side with the transportation constantly picking up packages that allows us to a patch stations. So not only do we get more throughput in terms of being able to pack more who are able to free up resources to meet the other digital demands that the guests have for us.

So when you think about speed efficiency and safety are teaming death benefit in a big way sortation centers out of future for target I am excited for the next few years as we continue to scale and continue to grow share at target.

Yes.

The ongoing investments in our supply chain are designed to keep our stores at the center of how we serve our guests.

Just as important to the continued investments we make in the physical stores themselves.

Since 2017, we've completed top to bottom remodels across nearly half our chain.

Or even more inspiration to the store environment, while helping our team more effectively support online fulfillment.

This year, we're remodel around 200 stores and keep that pace in the years that follow.

So these arent the same remodels, we were rolling out when we started.

Each year, our architecture and construction crews update our plans to keep raising the bar on retail design.

And our guests continue to tell us they like what they see.

Following a remodel traffic gains across the store helped drive an average 2% to 4% sales lift in year, one and another 1% to 2% lift in year two.

As a full store program continues while also investing hundreds of smaller projects to support growing in store partnerships, including Ulta beauty, Disney and Starbucks and to make store fulfillment even easier for our team.

As we invest in an existing in our existing store portfolio will continue to open around 30, new stores a year.

For the better part of the last decade, our store growth has been driven by small formats.

With a more flexible footprint. These stores have enabled us to enter new markets and reach more guests.

This year will keep growing opening doors and iconic sites from the historic streets of Charleston, South Carolina to the Buzz and energy of times square.

At the same time small isn't always got planned.

With our stores now more productive than ever there are benefits to a bigger box.

And given the favorable real estate market.

These sites are available at attractive deals.

I'm not talking about our largest store formats, though they continue to do extremely well for us I'm talking about mid sized stores two to three times bigger than our small formats.

These sites are built in dense neighborhoods with enough room for a traditional store experience and digital fulfillment, how big a spring target closer to even more guests.

This versatility is another example of how we built our flexible operation to support our growth.

10 years ago, we designed and built to store formats large and larger.

Today, we have the opportunity to open and operate stores and spaces of any size. So we can meet our guests wherever they are.

This year, we'll open stores ranging from 14000 square feet to 10 times that size.

Using that flexibility to design shopping experiences that best meet the needs of each local community.

And before I hand, it over to Marc I'll close with how I started with our team.

You heard it from Brian and John our store director in Wisconsin.

Still in the early days of our growth strategy.

And it's our tea continuing to accelerate capabilities and build trust with our guests that will keep target growing well into the future.

As we've invested in their growth from wages and benefits that you heard about today education skilled training of career progression.

Internal surveys show, our team's engagement morale and confidence in targets future remains strong.

That stability has led to better guest service more collaboration.

And as Brian said, a finer ability to flex adapt and navigate the new challenges of being a bigger stronger target.

When we take care of our team they take care of our guests proof that targets culture will power our strategy to deliver he's inspiration enjoy for rguest for years to come.

Take a look.

The past few years.

And Laura.

We're going alone.

I've always wanted to go to school I've always wanted to finish and with light happening never really had the opportunity.

When I started at target I didn't even really know what the opportunity versus like help me I don't know what I want to do in my life.

October 2020, my Dad died by leader with situation and they're very understanding when figures lymphomas and ive seen anything that let us know.

Getting the support from target mineralized Mi linked trusts within the company.

These guys really just kind of reached out to all of this perpetual I'm really making sure that aren't set up for success.

College is just as important and yet 40 than it was back when I was in my 20 stream.

Stream could be as an opex vulnerable to finish my degree.

<unk> for my College education, and how Tiger carrying Neil.

There are so many things that they help with the.

<unk> target does help me provide for myself and for myself too.

To be able to overcome with being the hub.

Targets shown up for me.

So in the past year. So my MBA from Redlands promoted him senior operational measures and then bought a home.

Target help with all of that.

Really mean these volume today.

In Hawaii, we say melamed kaki take hot here and not take care of one another.

That is the true culture that we created for that target.

Yes.

Good morning, everyone.

One of the best parts of all my job is getting to spend time with our team every week in stores across the country and I hear stories like those we just shared and the video stories about what target means to our team.

And there is no doubt that our more than 300000 store team members, who interact with our guests every day, our targets biggest asset and our single greatest differentiator.

The inspire me as we bring our purposeful life every single day.

And I'm excited to talk about them in what they do including ways that may not show up on our balance sheet.

Big parents for example, he has a team member in our Fairview Heights, Illinois store, who stopped what he was doing to help change the guests flat tire in our parking lot.

Her response.

He is my hero I'll be looking for them every time I go in that store just the tomo specially is.

Or mono a leader in our Maui store, who help the elderly community and the remote total panel.

<unk> partnered with a local nonprofit to help them get the essentials they needed when they couldnt make it to the store in person.

Our team is there to help our guests everyday handling them clean cards as we work on our front doors, helping them find that perfect item on the shelf dropping their bags into their car or shipping orders out the back to their homes.

They show up for our local communities and each other.

And day out.

That's why when we set out to put our stores at the heart of everything we do it was clear that the most important investment we could make will join our team.

We know what engaged teams more productive and creates a better experience for our guests.

And over the last year, we've invested in wages debt free education and made even more of our team eligible for health benefits.

We are also focused on desired hours and more reliable schedules through one on one conversations with our team.

And we have an ongoing commitment to develop our team to get to wherever they want to go.

We've also seen great growth in our new on demand scheduling option. We introduced this year with more than 35000 team members already signed up.

It's a perfect opportunity for those team members, who may only want a couple of ships a month.

Or a college student who wants to work over the holiday season, when she's back over winter break.

Together, our investments consisted of hours for our team and the flexibility of on demand models help us deliver for our guests while supporting the diverse needs of our team.

Even though the U S labor market is seeing some of the highest turnover on record.

Right in target stores remains below pre pandemic levels.

Our stores are fully staffed we've been able to leverage the training and the tenure of our team to easily shift against demand without missing a beat.

Let's talk about the experience, we're delivering for our guests.

<unk> is the easiest place for our guests get everything they need no matter, how they choose to shop.

Even in a year as unpredictable as 2021, we saw satisfaction rise with gains in many of our most important drivers of guest experience like interacting with our team on the sales floor and wait time at checkout.

In fact over the past two years, our already impressive overall net promoter score increased more than 10%.

True Testament to our team's commitment to service.

And every store from a register the drive up playing our team is building loyalty with guests offering ease convenience and incredible service that keeps them coming back.

For example, more than 60% of our new drive up guests return to use it again that month.

And when a guest tries a new same day service for the first time, they spend more targeted going forward, including in our stores.

Last year more than half our digital sales came from our same day services.

In the year ahead will fuel that momentum deepening our trust with our guests with an experience our competitors can't match.

That means clean bright non brand florists, then invite discovery inspire guests with the latest products all brought to life by an incredible team.

The team that's empowered and trained across the building so they can jump in wherever our guests need us.

And we've developed a flexible framework of service. So every single team member can engage and connect and problem solve with guests across the store.

We'll continue to backup train every new team member on same day services. So we can easily adjust for peaks and in store pickup.

And we're offering continuous learning and development moments throughout the year in key categories and new brands.

We know operational excellence of the service go hand in hand, so we're focus on nailing the fundamentals and making shopping at target easy and special for our guests take a look.

Yeah.

Okay.

Yeah.

Okay.

Yes.

Yes.

Yes.

Okay.

Sure.

Okay.

Yes.

Sure.

Yes.

Thank you.

Okay.

Okay.

Yes.

Yes.

Okay.

Got the magic and <unk>.

With me.

Great.

<unk>.

Or.

We take the higher.

The Commonwealth weakened.

Sure.

No problem.

Yeah.

Great.

Awesome.

Yes.

Okay.

Okay.

Yeah.

Okay.

Yeah.

Thanks.

Okay.

Sure.

Yes.

Yeah.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

And nearly 2000 communities across the country. Our target team provides great in store experience and easy fulfillment options.

With same day services already have scale from coast to coast, we were ready with guest shopping behavior changed.

And as we've seen demand grow our team was able to support that growth and accelerate our progress to meet guest needs along the way.

In the past year, we've added adult beverage and expanded our assortment for pickup.

We build in more personalized features like sending a friend or a family member when plans change choosing where you'd like your order placed in your car or selecting a backup option of some things out of stock.

We've doubled the amount of drive up parking spaces in the holiday season.

Guests can get those last minute guests without leaving their cars.

Our guests love our same day services, and we provide great cost savings of nearly 90% per unit compared to shipping from an upstream warehouse.

In the year ahead, we will keep improving order pickup and drive up offerings with a focus on quality speed and great service.

We'll continue to expand the assortment available and we'll add the backup idled functionality to even more categories.

In the months since we rolled out this option our teams are able to substitute the backup items, 98% of the time.

Everything we do a target is grounded in making our guests daily lives even easier.

We want every target run to be fast convenient and rewarding and that includes the return process.

Our teams are building the capability to accept returns from the drive up Williams with plans to test later this year. So guests will be able to check everything off of shopping lists and return a product that wasn't quite right at the same time and without leaving the car.

And lastly, I'm really excited we're going to pilot the ability to order Starbucks for drive up so guests can get everything on their list and request for morning Latte when they're on the way, we'll never even unbundling their seatbelt will.

We will take a test and learn approach in select markets throughout the summer and fall with a goal of eventually making this option available from coast to coast.

To bring these enhancements to life and continue strengthening our operations. Our team is working to streamline on tobacco, even further integrating the omnichannel experience into how we run and staff our stores.

Now of course, nothing at target happens in a vacuum. So we're working with partners from across the organization from Tech and digital to supply chain and properties to support these capabilities.

The ability of our store teams to ship local orders out our back doors continues to increase our speed to guests, while delivering cost savings of more than 40% per unit versus upstream shipping.

We're working closely with our supply chain partners as we rollout more sortation centers across the country as you heard from John We're excited about the efficiencies will continue adding to our ship from store operation.

Frequent sweeps of our stores, who are local sortation center frees up space in our back rooms, and centralizing the sorting process helps our teams be more productive and saves valuable time.

Our teams are focused on greater ease and efficiency with store staffing, especially when it comes the same day options. So we can be ready to flex with guest demand.

We're enhancing our technology to gift store leaders and even clear real time picture of fulfill needs and testing out new tools to help them better predict guest patterns in the future.

Helping us be even more efficient in staffing the right teams at the right times ready to do the work and deliver for our guests.

We're making upgrades to physical space without support these services remodeling our stores with more hold capacity etiquette, adding dedicated doors with easy access to the exterior.

More drive up spaces for parking lots and we're even adding some casualties in stores that get bad weather.

Also our teams can get orders for guests quickly and safely every time.

And inside our stores, we're making improvements to the process itself to make things even easier for our team and better for our guests.

Like finding the most efficient ways to pick orders from how we deploy the team members to technology that helps reduce footsteps throughout the store.

All with a goal of continuing to deliver the ease and convenience our guests expect.

Our solid operational foundation in stores as hub model has allowed target to be there for our guests even when the world shifted around us and will continue to be the engines of our growth.

That foundation is made even stronger by the deep roots of empathy and care and everything our teams do to keep us moving forward together.

Now before I turn over to Rick I can't Miss the opportunity to say, thank you to our team.

With stores at the center of how we serve guests across the country, they've risen to every challenge with care resilience and flexibility.

Not only meeting guests' needs today.

But ensuring we will be ready for them tomorrow.

Thank you.

Oh.

Sure.

Yes.

Thank you Mark I am proud to be here today, representing target's food and beverage team.

Because getting to $20 billion in sales last year.

Delivering double digit growth on top of 2000, twenty's double digit growth.

Achieving millions of dollars and market share gains and becoming America's fourth biggest digital grocer.

And being named retailer of the year by supermarket news.

Well, none of that happened by chance.

As some of you know we've been on a journey when it comes to groceries at target.

Food has always played an important role in driving trips and basket size, but we knew we could do so much more in this space.

Today target is a company that doesn't just sell food.

We are a company that celebrates food with a grocery business, that's driving trips and basket size and even more importantly loyalty.

It's become part of the differentiated experience that separates target from the pack.

Now before joining targets marketing team back in 2013.

I spent my entire career working for iconic food and beverage brands.

That experience taught me.

That food and beverage is a business that is deeply personal for consumers.

And that's what our team is delivering a target.

Central to our success is the fact that what we're doing is 100%.

Apologetically target that.

That means we're not copying competitors or trying to do something were not instead.

Instead, we're listening to our guests and we're leaning into what's special about target to provide a better experience at a great value. That's led to amazing results a deeper sense of loyalty from our guests and the opportunity to do even more.

Great example of this is our digital business.

It's hard to believe but just two years ago fresh and frozen order pick up in store and curbside was just a small test in a few markets.

But when the pandemic hit we knew we had to accelerate our plans to meet guest fast pacing.

Fast pacing changing needs.

So in a matter of just a few months, we installed refrigerators and freezers for order pickup in hundreds of stores nationwide.

We trained thousands of team members to pick online grocery orders.

And we rolled out new marketing to raise awareness that that if youre looking for a safe quick easy option for getting your groceries and essentials, that's by the way free with no order minimum requirement will then target is your place.

When you think about the power of team there are few better examples and then how in the middle of a pandemic in the midst of peak level sales, we mobilized teams from across the company to undertake this monumental body of work.

Because it was the right thing to do for our guest and it was the right thing to do for our business.

It really has been a game changer for so many families looking to limit trips outside their homes and into stores and it has revolutionized our food and beverage experience.

Turning target into an omnichannel grocery powerhouse.

And we will continue to make our pickup service even better.

For instance, since launching fresh and frozen pick up we've also added adult beverage pick up to about 80% of our stores.

And I am so excited about what Mark just shared with Starbucks as part of our drive up experience.

But it is important to recognize that there's still a lot of potential in front of us.

But even as guests have started reclaiming some of their routines, including making more trips into our target stores.

Our digital business fueled by shipped in our order pickup services continues to grow because the numbers at the end of 2019, our digital penetration in food and beverage was two 3%. We ended 2020 at nine 6%.

We closed 2021 at 13, 2%.

2021 digital sales were up $900 million over 2020.

And up by six fold over 2019.

Our net promoter scores consistently show that guests love our digital services.

So as we keep driving awareness and trial and adding new experiences we anticipate continued growth.

Another area, we're driving awareness and trial has led to ongoing growth is in our owned brand assortment.

Back in 2019, we rolled out our flagship owned brand. Good <unk> gather it was the largest owned brand launch ever today. It totals nearly 2500 items across food and beverage and is helping change perceptions about the shopping experience at target.

It's affordable, it's delicious and it's on trend.

Whether you are looking for a quick easy Tuesday night dinner or something fun for entertaining during March madness.

Guten gathers everything our guests have long expected from targets owned brands.

And today its growth is outpacing the industry average for private label brands.

And Theres more favorite day, a new brand of craveable baked goods and treats that draws guests into the food aisles.

For instance, some of them have come to target because because their kindergarten or lots of sneaker and she has gym class tomorrow.

But while that's there he might as well reward himself with a container of peanut butter Monster Trail mix for the home office.

Now target owned brands are only part of the story.

We are also elevating our assortment by diversifying our assortment because we know that represent representation is critical to ensuring that we are that our offering is relevant to all our guests.

Now we redesigned it at the beginning of last year to accelerate our commitment to adding more black owned brands.

We had a dozen or a food and beverage assortment, but by changing the way we work working hard to build new relationships and by using our size and scale to help brands grow for success in mass retail.

We'll end 2022 with more than 50 black owned brands in our food and beverage assortment.

And we won't stop there because these brands don't just make us more relevant they make our assortment better.

A great example is Mcbride sisters wine, a black female owned business.

We actually started working with them back in 2018 with a small partnership and about 100 stores in the south.

Today today Mcbride sisters is available in over 1200 stores.

Or everything legendary a company one of our buyers on television and couldn't wait to work with so the next morning. He picked up the phone sparking relationship that led to everything legendary becoming targets first black owned plant based meat supplier.

And target has taken a strong position in coffee a category, where our guests have especially high expectations.

Blackboard as a three and a half year old company founded by two childhood friends and they have put social impact at the center of their business model, giving 5% of their profit to support kids and underserved communities.

It's a company that we knew was a perfect fit for target.

They were our first black owned coffee brand today, well today, they're available in 1300 stores.

And online.

The response has been amazing.

I Love the suite now you got to go to target and buy a keurig and the black owned coffee black and bold.

That tweet also brings me to another key differentiator for target.

The role we play as part of target's multi category assortment, that's something that sets target apart on everyday trips and especially around holidays and key seasonal moments.

Target dominates holiday seasons.

Guests love that they can get everything they need a target.

Halloween candy and costumes, the Thanksgiving, Turkey and games for the kids, while the adults are gathering in the kitchen or watching football.

And of course, everything you need to make Hanukkah Christmas Kwanza Ah three kings day's special including a robust selection of gingerbread houses.

And this trend is continuing in 2022 as we saw during the first big seasonal moment of this year Valentine's day.

Through the power of the total target experience the way, we innovate, including our new favorite favorite day, Valentines sugar Cookie kits building on targets cachet and the gingerbread space.

And the platform, we provide for our National brand partners to do amazing things to grow their brands. Our team came through with a kind of Valentine's day experience that makes target special in fact, redelivered, our biggest Valentine's candy sales ever.

And we did it by the close of business on February 13th we did it with a data spare.

And we reached another milestone on February 13th, finishing the week with record sales for snacks ahead of the Super Bowl.

And despite all of this was so exciting to our team is that Theres still a lot of room for us to improve grow and gain even more market share in food for years to come.

For instance, our research our research shows that even our best guests underestimate the breadth of our assortment.

You can only get some of their groceries or target.

As we continue to raise awareness of our full offering and we get credit for what we are already doing and the value that we provide.

Well that is a huge opportunity.

You heard Kristina talk earlier about accessibility and affordability, that's why the digital snap payment option. We're rolling out this year is so important to food and beverage.

It's going to make our entire experience in store and online accessible to all families, allowing them to shop on their terms, regardless of how they pay for their groceries.

And as we move more product.

Foster than ever through our distribution network, we are continuing to look for ways to move that product even faster.

Some of our improvement will come from the way, we work with our national brand suppliers.

Encouraging them to prioritize the growth opportunity that target represents.

We're also working to better utilize our food distribution centers to keep up with the fast growing demand.

We will continue leveraging the power of our own brands for everyday needs in and big seasonal moments.

And I'm excited that for the first time, we're going to have a holiday themed favorite day assortment this year.

And then there's circle is especially crucial to what we're doing in food raising awareness of our assortment and the value that we offer.

As you heard from Kara we are not done growing what's already one of America's biggest and most vibrant loyalty programs.

And as our marketing team continues to build on the success of circle, that's going to help our entire business, but especially food and beverage.

We have a lot to be proud of.

And Theres a lot of opportunity and yes, a lot of work in front of us.

But when I think about the future I would say my optimism is rooted in our team.

So before handing off to Michael I'll close with one more thought on team.

Over the last couple of years, we've hired scores of food and beverage directors and coordinators.

People with immense.

Expertise in the grocery industry, who are helping us drive continuous improvement across our operations.

A few weeks ago I was visiting stores in Colorado, and I was talking to one of our coordinators Bridget.

I asked her why she joined target.

Now keep in mind. This is someone who joined us from another retailer.

Someone who already had a good job and was doing well in her career, but.

But when I posed this question.

The first thing she said goes to what Brian was talking about in his intro.

She talked about culture.

Bridget was willing to take a risk in her career to leave a situation that was pretty good and give target a chance because of what she heard about being a part of this team.

She told me a lot about the people. She works with the support you have to make decisions that are right for the guest.

And the partnership she has with team members working in other categories.

Bridget told me it was everything I hoped for and more.

In this environment the race for talent is just as intense as the race for sales.

But every day people are opting in to be a part of the target team because of what we have already achieved absolutely, but even more so because of the possibility of what we can do going forward I'm just as proud of that and inspired by that as I am of any of the numbers that we've shared today.

Because when I think about everything in front of us.

Team members like bridging and the human touch and the guest focus that our entire team brings to their work well that is what it is going to ensure that our guests can always count on target. Thank you so much and now I'll hand things over to Michael.

Yeah.

Thanks, Rick at the top of the meeting Brian shared some of the key milestones from the last five years and I'd like to begin my remarks today by highlighting one more which is the long term financial algorithm, we unveiled during that time.

Youll recall that the prior algorithm anticipated low single digit sales growth.

Mid single digit operating income growth high single digit adjusted EPS growth.

After tax ROIC in the mid to high teens.

And the two years, leading up to the pandemic our business was consistently generating topline performance in line with the algorithm as we saw average sales growth of three 7% in 2018 and 2019.

And on the bottom line during that period, our business grew somewhat ahead of the algorithm with average adjusted EPS growth of 16, 7% over those two years and average pretax ROIC.

A 15, 4%.

Since the beginning of 2020 Covid has changed nearly every aspect of consumers' lives and we've all seen its impact on the retail industry.

Target our team and durable model navigated these changes incredibly well advancing our business far ahead of expectations.

Simply put over the last two years, our financial performance blew away the prior algorithm from top to bottom.

And today, we're a much larger retail are generally generating industry, leading returns on capital.

As we enter 2020 things remain far from ordinary but our future beyond this volatile time is taking shape.

And given the durable and sustainable model, we've built and the ongoing investments, we're making we've updated our financial algorithm, which will define our long term expectations beginning next year in 2023 and beyond.

This updated algorithm demonstrates our confidence in targets ability to continue growing on top of the incredible expansion over the last couple of years.

Specifically over time, our updated long term algorithm anticipates.

Mid single digit annual growth in both total revenue and operating income.

High single digit annual growth in adjusted EPS.

Annual Capex of $4 billion to $5 billion.

After tax our IC in the high 20% to 30% range.

Compared with our prior algorithm this new one leans more into growth driven primarily by comparable sales combined with the benefit of new stores and continued growth from other revenue sources.

Our confidence in targets ability to continue growing as based on all of the initiatives you've heard about today, which are designed to drive engagement traffic and market share gains, including new stores.

Remodels Nash.

National brand partnerships and owned brand innovations expansion of our same day services growth of new and emerging revenue sources further rollout of sortation centers continued investments in value and affordability.

Leveraging guest insights to enhance our assortment and promotions, while personalizing the guest experience.

Elevated guest service through investments in the team training and technology.

All while investing in target forward to enhance the long term long term sustainability of the business and the planet.

Since today is the first time, we've included over other revenue on our topline guidance I want to pause and cover some of what's reflected in that line of the P&L and what's been driving its growth.

And while there are many smaller items represented on the slide profit sharing income on our credit card portfolio has historically accounted for more than half of it.

But in recent years round Dell has been the primary growth driver of the slide, causing it to become the second largest component.

I want to emphasize however that round those impact extends well beyond the amount reflected on this slide alone as a meaningful portion of round does income reduces our cost of sales benefiting our gross margin.

Among other notable drivers shipped membership fees are included on this line along with the fees. We received from third party vendors on target plus which are expected to grow over time.

Moving to the operating income line, you'll note that our long term growth expectations are consistent with the prior algorithm, but we don't rely on rate expansion to get there now.

Now I should quickly point out we'll happily welcome rate expansion when it happens for the right reasons, including the massive scale benefits we've realized over the last two years.

But as I've said many times given that we're focused on maximizing profit dollar growth our plans account for the inherent tradeoff between profit rates and topline growth.

Put another way a durable business model anticipates the needs for continual investments to deliver sustainable growth as such we have built an algorithm based on driving and harvesting continued efficiencies in our business and continually reinvesting those savings and growth that further differentiates target through our <unk>.

<unk>, our stores and the entire guest experience.

Among the factors that will drive our operation operating margin rate over time, we expect the headwinds and tailwind will general generally balanced each other out on.

On the gross margin line. Those factors include merchandise mix channel mix and merchandising strategies.

On the SG&A line cost leverage efficiency gains and team investments are most notable.

On the DNA line leverage and accelerated depreciation are the primary drivers.

Also consistent with the prior algorithm. This updated one anticipates high single digit growth in adjusted EPS, driven by driven by mid single digit growth in operating income combined with the benefit of continued share repurchases.

Moving on to capital deployment I want to first reiterate our priorities, which have remained consistent for decades, our top priority is to fully invest in our business and projects that meet our strategic and financial criteria.

We then look to support the dividend and build on our 50 year record of consecutive annual dividend increases and.

And finally, when we have capacity beyond those first two uses we repurchase shares within the limits of our middle a credit ratings.

Beginning with investments in our business, we expect ongoing capex will be in the $4 billion to $5 billion range annually and will be focused first on our continued investments in our stores as hubs model, including new locations full store remodels fulfillment retrofits and projects to support key national brand partnerships.

In addition, as John outlined we will continue to invest in our upstream supply chain sortation centers and DC automation to further reduce store workload.

Even after these sizeable and Capex investments, we expect to have ample capacity for shareholder returns as well given the robust operating cash flow our business continues to generate to generate amounting to more than $8 $5 billion in 2021.

We'll maintain our focus on growing the annual dividend something we've accomplished for 50 consecutive years and look to maintain a 40% payout ratio over time.

In addition, given our expectation for continued strong cash generation by our business will have the capacity to return capital through share repurchases within the limits of our middle a credit ratings.

Finally, the most dramatic change from our prior algorithm pertains to our after tax ROIC FSI, where our updated range of expectations is 10, plus percentage points higher than before.

This change highlights the asset efficiency of our stores as hubs model, which is unlock the full potential of our store locations to flexibly serve our guests.

With this model our business has generated revenue growth of more than 35% or nearly $28 billion over the last two years largely on the existing asset base.

Now I want to move on to expectations for this year.

As I step back and think about where we are and where we've been it's clear we're still in the midst of the pandemic, but we've entered a new phase.

In this phase, we're still facing multiple challenges and uncertainties, including a tight labor market and persistent supply chain bottlenecks, which are contributing to higher inflation rate rates than we've seen in decades.

And beyond those ongoing challenges will soon get to see how the consumer and economy move beyond government stimulus as we compare over the large first quarter packages. The benefited consumers both in 2020 and again last year.

However, the last couple of years have also proven the durability and flexibility of our business and financial model.

Specifically relying on stores as fulfillment hubs allows our team to conveniently and efficiently serve our guests no matter, how they choose to shop.

This includes our suite of same day services, which differentiate target and provide a reliable fast and easy shopping experience.

Our model features a unique brand and balanced merchandise was broad and balanced merchandize assortment, allowing us to serve guests and drive trips sort of a wide variety of wants and needs.

And our long history of investing in value and affordability, which has long been a key differentiator becomes even more important in an inflationary environment.

As a result, with a proven model and the multiple of growth investments. We've highlighted today, we expect to continue growing the top line in 2022 generating a low to mid single digit increase in revenue on top of historically strong growth over the last two years.

On the operating margin line. This year, we're planning to deliver a rate of 8% or higher reflecting several deliberate right investments to position our business for long term profitable growth.

First on that list, our continued investments in pay and benefits to support our team as we build on the enormous progress we've made over the past few years.

Beyond the team this year as investments in growth capacity will drive some rate pressure.

And we're planning for a small increase in markdown rates in 2022, as we move past the dramatically low rates, we've seen over the last couple of years.

Finally, and importantly, we'll continue to focus on value and affordability in this inflationary environment.

That means taking a thoughtful long term approach to pricing decisions, ensuring that we deliver unbeatable value for our guests.

We have many levers to combat costs and prices. The one we pull last not first.

As a result product costs within our assortment have risen faster than retail as in recent quarters, reflecting this intentional approach and deliberate pacing.

We expect this trend to continue particularly in the first half of this year as we maintain our focus on affordability for our guests.

Altogether, given our expectations for revenue growth and purposeful operating margin rate investments, we're positioned to deliver low single digit growth in operating income dollars. This year.

Consistent with the longer term, we expect capex in the $4 billion to $5 billion range. This year.

This range is wider than we typically see at this point of the year given continued delays in receiving fixtures and equipment, along with permitting and inspection delays in local communities.

Put another way our hope is to be at the top end of this range in 2022, but it's possible that that external factors will continue to affect certain projects.

Regarding the dividend later this year, we plan to recommend that our board approve of per share dividend increase in the 20% to 30% range as we continue to move toward a 40% payout ratio over time.

In addition, given our current cash position and expectations for strong cash flow. We believe our 2022 share repurchases will be at or above the $7 billion, we accomplished in 2021.

Putting all of our expectations together.

Low to mid single digit revenue increase and operating margin rate of 8% or higher and continued robust share repurchase activity, we're positioned to generate high single digit growth in adjusted earnings per share. This year on top of 112% increase over the last two years.

While I'm not going to provide detailed quarterly guidance today I want to pause and talk about how our 2022 profit performance is expected to play out within the year given some of the unique factors involved.

Specifically in the front half of this year, we'll be Annualizing last year's government stimulus, while facing ongoing supply chain pressures and other cost increases in.

In contrast, as the year progresses, we'll begin comping over the period of higher costs that emerged in the back half of last year, while our supply chain and merchandising strategies have more time to adjust.

As such we expect our quarterly profit performance will be choppy during the year and generally improve as the year progresses.

Q1 provides a timely example, this chart shows the variability of our Q1 profit rate over the last three years. Looking ahead, we expect our first quarter 2022 rate will move to something that's relatively high to our history, but well below last year's nine 8% rate, which was unusually high due to some unique factors.

As I get ready to close my remarks, I want to pause and spend a minute talking about the key role that efficiency and disciplined expense management have played in our recent success and how we're committed to maintaining that discipline going forward.

And while I could provide many examples of our team's cost discipline I want to focus on a couple of notable ones.

First on that list are meaningful efficiency gains we've realized in digital fulfillment.

Across each of our digital fulfillment nodes from package delivery to in store pickup drive up and shipped we've implemented multiple processes and process improvements and rolled out new technology to remove costs and increased speed to our guests.

As a result over the last three years, our average per unit digital fulfillment costs have declined by more than 50%, reflecting both efficiency gains and the benefit of mix as our most efficient same day services have become a bigger and bigger portion of our digital sales.

Looking ahead to the rollout of sortation centers, because it presents a compelling opportunity to further reduce the unit cost of last mile delivery.

As John mentioned in the twin cities market, where we've been piloting our first Sortation center, we've seen our average per unit last mile fulfillment costs go down by nearly one third.

The second example, I want to highlight is the enormous benefit we realized from the investments we've been making in our team.

These investments have driven positive change to the lives of hundreds of thousands of team members offering more steady income pathways to career growth in education and access to benefits that meet their evolving needs.

But these investments are delivering efficiency and growth in our business as well a portion of these gains come directly from the fact that with high retention rates and improved training our team can accomplish tasks more efficiently than in the past.

But that's just the beginning.

Cause of our investments in the team they're continually delivering higher levels of service building on the trust we have established with our guests. This results in higher satisfaction scores higher engagements and more return visits.

And with higher service levels target becomes a more attractive partner for leading national brands, enabling partnerships like Ulta beauty, Apple Disney and Levis.

Once you've accounted for all of the efficiency and top line benefits that have come from our team investments you can see why I reiterate time and time again that caring for and investing in our team is the best long term investment we can make in our business and.

In fact, whether I'm looking at these investments as the CFO or through the lens of my earlier road role supporting stores are leading pay and benefits for our HR team. The lessons are consistent whether you're talking about physical capital our human capital under investing might lead to great looking results over a very short period, but theyre not.

Not sustainable overtime.

So before I close I want to pause and express my gratitude to our team many of whom are listening into this meeting today.

You have delivered industry, leading results over the last couple of years, while taking care of our guests and each other and.

And importantly during that time, you've made target a much stronger company positioning us to deliver sustainable profitable growth from our significantly larger retail platform.

Want to thank you all on behalf of all of our stakeholders now I'll turn it back over to Brian for some closing remarks.

We began this meeting talking about our path.

Five years.

From $70 billion to $106 billion.

We took you through our present, our strengths our neighbors and our culture of care.

Now I'd like to talk about our future.

We see a growth horizon for years to come.

We will continue to invest in our strategies.

We continue to invest in our capabilities.

We'll continue to nurture a team that cares.

Here's about work that is purpose.

Cares about work that is meaning.

We are growing teams that embrace our commitment to their career growth and development.

Our commitment to competitive pay and benefits.

Our commitment to being a premier American brand.

Our commitment to growing teams that care.

Yes.

We have the team.

And we have the strategy.

We are 100% focused on the needs of American consumers.

We have some of the most innovative and.

And guest centric capabilities in retail.

We have a balance sheet that is the envy of the industry.

And we have a record of cash generation you can count on provide incredible value to our stakeholders.

Yes, as we look at the growth horizon in front of US we see many opportunities.

As we move forward.

We'll stay focused on helping our guests navigate through continued uncertainty.

With what's happening in the world around us the pandemic.

And the macroeconomic environment.

This includes the highest inflation in decades.

And the gradual loosening of supply chain bottlenecks.

We'll stay focused on delivering value and affordability to our guests.

We know how to deliver.

Exceptional value and manage profitability.

We can protect prices whenever possible.

We can offer unbeatable range of owned and national brands across our portfolio categories.

We can make value into our assortment.

And we'll work with our vendor partners from sourcing to production to shipping.

We'll ensure.

That those prices will offer will always be among the best in American retail.

We have a strong record.

Thoughtful investment in supply chain and innovation.

We provide a competitive advantage by keeping our stores stocked.

And our digital orders built.

We have the flexibility we need to contend with constraints. So we can keep growing and thriving in any environment.

And above all.

We have the team.

A few days ago I visited several of Minnesota stores.

I was impressed with the Ulta beauty displays.

With our Disney shops, whether Apple stores.

But what impressed me most was a team member who came up to me and said, Brian I am so proud to be working at target.

I'm proud of how you're handling the pandemic.

I'm proud to be part of the target team.

We have a team that is committed to making target of the future even better.

The target of the future even stronger.

And the target of the future even more caring.

For everyone, who was listening today, including our teams across the globe.

No were already working to determine the best way to support humanitarian efforts for the people of Ukraine.

As we have throughout the last couple of years will rally our team.

Put our resources to work to support families through these challenging times.

And with that.

I'm going to ask all of our speakers to join me on stage and we'll start taking your questions.

[noise].

Yeah.

Right.

As we get started I.

Would ask you to wait for a microphone. Please introduce yourself, while you can see us wherever it is a challenging time seeing you.

So I'll look for a show of hands, we've got one right upfront.

Thanks, Good morning, Chris <unk>, Jpmorgan Hi, Chris.

Thank you for the presentation today. So my first question I have too is in the long term sales guide it seems like you're baking in about a 354% comp.

Is that fair and how are you thinking about the share gains component of that because you've gained a lot of share in the past few years, 3.5% to 4% seems like a very sort of normal rate of consumption growth in the economy or is that are you baking in any share gains.

Michael you want to start and then I'll come back and talk about our approach to share as we think about the long term algorithm comp growth will certainly be the biggest driver there where that lands in a given year might be up or down, but I'll tell you. We expect to be a business that continues to grow and gain share year over year. The investments, we're making are to drive outsized growth and that should come with share gains.

Yeah.

I'll give you a sense for how we run the business each and every day and I can tell you. This team spends hours each week looking at share.

By category across our markets to make sure that we have the plans in place to constantly be taking share as we go forward. So there's lots of different metrics. We look at as a team I would tell you. This team spends a tremendous amount of time looking at share share opportunities building plants to make sure the.

Over $10 billion of share we've gained in the last couple of years is something that we continue to move forward as the years go by so we are very focused on share and our guidance will certainly be a company that continues to take share across the entire multi category portfolio, both in stores and from a digital standpoint.

And so my follow up question is on gross margin.

It seems like Theres going to be some pressure this year more so in the first half on some of the price that you're absorbing.

But if you look at the past few years since 2019, it looks like you've gained somewhere around 250 bps of promotional clearance sufficiency.

How do you think about the structural component of that over the long term balancing.

Higher levels of store productivity versus clearance and then normalized promotion. Thank you I think your question grabbed about all the different variables there Chris.

So I'll do my best to summarize the shape of profit for the year will be likely described where you would expect it to build over the course of the year. When it comes to markdowns specifically, there's some markdowns that we'd been rooting for returning to be better in stock with stronger inventory levels means a few more clearance markdowns and we're planning for that outcome in the upcoming year when it come.

Mr promotional markdowns, we should realize some sustained benefits and markdown efficiency as we've gotten bigger and wolf stay close to the competitive environment to make sure that we're priced right every day and that we're competitive on promotion as well great.

We've got a question right over here.

Good morning, Thanks, a lot, it's Michael Lasser from UBS.

One of the key messages that you've delivered today is a targeted growth company you've raised your long term guidance to reflect that.

Whats inspiring the view that growth is going to be higher moving forward than it's been in the past is it the really you've proven it out over the last couple of years and if that's the case what behaviors do you expect to be sustained moving forward that consumers are engaging in during the midst of a pin.

And then a quick follow Christina.

A few minutes talking about some of the consumer dynamics, we're looking at right now.

Yeah I'd be happy to you first of all we have seen a sustained growth over a multi year period.

Ben let across the entirety of the portfolio. We've seen this past year alone double digit growth in every single one of our key five.

Merchandising areas. The other thing is and <unk> talked about this quite a bit but the depth of engagement of the consumer leading to more trip frequency is what we believe will have continued sustainable growth let alone all the initiatives. We talked about we're just in the beginning of our rollout of some of these national brand partnerships that are adding.

Full productivity trip consolidation and opportunity for growth. So it's it's a it's a.

Paradigm that we've seen proven out over the last two years and is continuing to give us the confidence that that's going to drive growth going forward.

Michael I might focus on four areas as we sit here today no one for those of you who have been attending these meetings over the last three four or five years, whether in person or from a virtual standpoint, one of these the consistency of our strategy is critically important and I think we've got great alignment across the organization as Kristina mentioned.

From a capability standpoint, we're still in some of the early days as much as we've been talking about remodeling stores to AMOLED and going all the way back to a meeting in 2015, we've touched about half the chain and then we've got another 1000 stores that we're going to touch going forward. We're very excited about the pipeline of new stores and as John talked to.

Various sized stores that allow us to maximize share opportunities in these catchment from our same day fulfillment standpoint, while we're very excited about the progress we've made.

Erik and Mark can talk about the potential upside as we think about temperature control products going through drive up and pickup. So in so many areas from our owned brand standpoint from a national brand standpoint, Rolling out. These partnerships that we talked about a lot today, but many of them are still in limited locations.

There's tremendous upside there we think as we continue to build out our circle in our connection with our guests. There is continued upside opportunities. There. So our consistent strategy capabilities that are still maturing, but I'll come back to the importance of our team and culture and the investments we've been making.

And those are all only going to strengthen our business model over time.

The one point that perhaps we didn't call out specifically that I think is really a hallmark of target today.

As we combine that focus on strategy and building capabilities and investing in our team and culture with a team that's focused on execution and if you look at the results. How we got from 70 billion to $106 billion, yes. The strategy was critically important and listening to the guest.

As we formulate that strategy was incredibly valuable the capabilities certainly allowed us to accelerate during the pandemic those investments in team and culture. They have supported us throughout the pandemic, but this is a team that's been executing everyday from a store standpoint from a digital standpoint, Canada.

Laurie by category and Michael I think our execution will only improve in the out years, which gives me tremendous confidence in the future growth and market share opportunities, we will capture the.

The only thing I might tack onto that is the algorithm contemplates those investments the capex, we're putting to work the way. We've described the operating margin in the fuel we can create to reinvest in the business growth doesn't just happen you have to invest in it the algorithm contemplates that my.

And my second question is targets operating margins go from 6% to 8% over the last couple of years, presumably a lot of that has come from a 30% increase in your.

Store productivity, which.

It's pretty extraordinary coupled with a reduction in your average unit cost to fulfill online orders.

The expectation coming into the meeting was you'll give a little bit more of that 8% margin back you're you're arguing no. We're going to we're going to keep that so what is it about what's happened that you think is more sustainable moving forward.

Interests that are prior to the pandemic. Thank you Michael I might ask John Mulligan just spend a few minutes just talking about the benefits of scale and as we've added almost $28 billion to our system and we talked about John talked about some of the highlights of our average store has added $15 million of growth and those scale benefits and efficiency.

<unk> helped fuel our business going forward, John you may want to highlight some of the benefits from our operational standpoint, yes.

I think Thats right Ed I mean, you hit on what the two big drivers are what one is scale and as we get bigger there is benefits that flow through the individual store P&L first of all they're leveraging all the fixed stuff. That's the easy peasy part, but everything becomes more efficient when we go from $40 million to $55 million, we may only add one truck or a week to that store or two trucks a week, we don't double the number of <unk>.

Trucks that are better store has to work. So you gain efficiency there in the back room as you're moving inventory to the front of the store things like that just create efficiency again once you're out on the floor and stocking goods, if you're a 40 or $55 million store that doesn't change you're out on the floor. If I put two on the shelf for three on the shelf nothing really changes there.

A marginal amount of incremental work right. So those are the little things that create additional scale in our hourly payroll which of course is the biggest expense we have that flows down through the entire P&L and then of course, Michael talked about our same day fulfillment and our ship to home fulfillment, we have improved individually each of those paths.

To the gas each one of those services the cost.

<unk> and the mix helps us because the most are the best NPS scores the ones our guests like the best our same day services, which are the most efficient as we've been talking about for a long time and then you layer on short centers, where we said and and look we've had this open for 14 months, just 14 months and we already said, it's way cheaper than what we were already.

Doing so there so I mean, you've seen us do it over the last five years continue to hone processes and improve them Mark and his team improving the pathing and putting the PEC and proving the prep and improving the pack that's a lot to say.

[laughter] improving all three of those and we'll do that all over again with sort centers. So so much runway for us to continue to drive efficiency and bring expense out and continue to invest in service on the floor at the store just a huge opportunity for us Michael just to build on that I might ask Marchionne Dell to start just talk about some of the.

With that he is seeing because of that scale and the growth in store operations and then Rick one of the areas, where I think we've seen a significant change in scale is in food and beverage.

$20 billion company, now and because of that growth rate and the change in our turns particularly in fresh foods theres enormous benefits that we're deriving so mark let's just start from a store standpoint with a few examples and then Rick I think you can walk through some of the benefits we're seeing because of the increased volume we're seeing in.

Stores, the increased turns and just the productivity we're gaining today.

Yeah, Thanks, Brian John shared a bit about how we're adding scale in our stores and you know a couple of things I'd like to add in when we think about our same day services that business. Just continues to grow and that example of putting an extra box on the shelf also plays out in same day service, where you can grab an extra bag as we see our <unk>.

Skips grow our trip frequency grows our productivity growth.

We've said it often but our most important investment we can make is in our team and our team is doing an incredible job executing and delivering scale and efficiency every single day and creating that an incredible experience for our guests.

Yeah, I mean specific to food and beverage we have had a tremendous positive momentum over the past couple of years, we've been able to deliver double digit growth on top of double digit growth, we've been able to gain billions of dollars in market share over the past two years.

And part of those benefits have come with that bigger businesses quite frankly, we are more credible in the grocery business and as a more credible grocer in the grocery business we have more.

Opportunities to partner with our National brand partners and so we are in negotiations when products are on allocation or Theres limited due to supply chain constraints.

Our our national partners recognize that target is a place to grow and they're looking to us first and I think that's a change of where we are today than where we've been in previous years. The other thing I would just say when it comes to things like produce the faster we're moving the.

The pressure of the product the less the waste.

So it helps us not only from a financial perspective, but actually from a guest experience perspective as well.

Let's go to another question I think we've got one right back here.

Hi, <unk> from <unk> research.

You were talking about the National partners and National thing. So do you have any plans on expanding to the international market like them around the world and the short mid or long term.

Take this one we get this question all the time and certainly I will never say never but for today as we look at the opportunities that we have right here in the United States, we're going to stay very focused on the foreseeable future executing our plans building on our momentum and investing in the United States before we start to think about.

Any type of future international expansion.

Alright got one right back here to the left.

Thanks, guys, Peter Benedict with Baird.

First question just on round out I think you noted that it.

Delivered $1 billion in value of the target can be defined values at revenue as the gross profit is that influenced sales I was just want a clarification on that that's my first question.

Carolyn I'd ask you to start with some highlights on rudelle and Michael maybe you can fill in the blanks from a financial standpoint, yeah. It's incredibly exciting to talk about the round out story and the Roundup business is not a new business for us and we've actually been able to scale. It quite quickly over the last several years by really being differentiated by focusing truly at the gas at the center and what we find is that our.

Our vendor partners love partnering with us around round out given those guest insights and they we've been able to actually keep the guests at the center and scale that to $1 billion, we're looking to scale that even quicker to $2 billion over the next couple of years by again being truly differentiated and partnering with our vendor partners. They find incredible value in partnering with us on those on those guests in.

Michael do you want to talk a little bit about the financials, how they roll through that I touched on this a little bit in my remarks, you can think of that $1 billion is kind of the size of the total roundup business and there's a piece of that that shows up in other revenue and there is a piece of a piece of that that helps helps us out on the gross margin line too.

But you'll notice we don't describe it as some separate other business carols point on it starts first with our guests when we can solve for our guests problem arm in arm with a business partner that creates value in total and part of that is captured in that billion dollars part of that is captured in a better guest experience overall.

Let's see.

Right up front.

Oh, Thanks, excuse me Ravi homes at Bofa Securities.

This might be a question for John Mulligan.

The question is you guys mentioned, you know mid sized stores and one of the larger stores and help me understand sortation centers and that's taking pressure off of stores and so do you not need larger stores and I think you've mentioned that you can put a target store kind of in any kind of real estate.

How does that work with the store is hub strategy, because I would think you would need certain kind of real estate to do the stores as hubs. So just help me understand what you guys are doing well.

Well first let me be clear, we will open up big stores, if we find opportunities to open up big stores. No question, we're going to open a 144000 square foot store. This year. We're excited about that so we'll keep doing that we went from big to small almost exclusively small you know 15 2025, maybe 30000 those are great sites will continue to do that.

We love those one just a few blocks from here soon.

What we're saying others. This middle ground that we haven't really built in the past and Brian I have walked in those we built some 60 70 80, even 90000 square foot stores a lot of old Kmarts.

Love them. They are big enough that you get the entire target experience, but the back room is big enough. So that we can do all of our digital fulfillment as well. So we get this great a middle ground between the two and I think our message today is we can do all of that over the past few years between our properties team store design construction Christina is merchant.

Because of sorting. These stores is critical to getting the right assortment for the neighborhood to serve that community is incredibly important we can do all of that and so there are these opportunities now out there where you can get into a dense urban neighborhood of dense suburban neighborhood with a 90000 square foot store, great. We'll do that all day long I think the short center of the great thing about that is it.

It's stuff out of the backroom faster much like we wanted to get the inventory onto the front of the store, which Mark's team has done outstanding job over the last few years, we want the boxes out of the backroom all of that creates capacity in the back room more pack stations more volume keep it moving just keep things moving and that's why the sort centers are so important to that strategy, but we will do whatever for.

And opening perspective.

Yeah.

Hi, Steph Wissink from Jefferies I have a question for the panel more broadly, but it's really about headroom I think you mentioned on a productivity basis and one of the most impressive slides as the sales increase versus the number of stores talk about how much headroom you have from a productivity per box basis, and how does that factor into your growth Algo and then Carey.

A question for you. This is a fun one but most searched for brand or category that you don't currently carry that we would love to have.

Michael.

Yeah, So John stopped in the past about the capacity we have to continue growing in stores and the thing I'd come back to there as we've seen over the last couple of years, how well stores in stores as hubs scale.

Got productivity gains and productivity per foot gains across the chain, it's actually true that the biggest stores generated the biggest productivity gains over the last few years and so that speaks to the headroom, we're creating we know the throughput we can get in stores and if you kind of go through a quartile by quartile in our stores that implies we've got.

A lot of stores that could get a lot bigger before they tap out and so we feel really good about the opportunity to keep growing the business, but stores as hubs is the thing that enabled so much of that capacity I think the only thing I'd add on is as inventory turns increase with scale you just push things through faster speed and.

Flow of inventory is the key to the whole game here like we were just talking about with Ravi and.

And as that happens we see it in our largest stores. They just move inventory it's constantly moving through it shows up at night, it's out the store. The next day, that's capacity, you're just moving inventory so lot of headroom for growth from that perspective.

Karen you want to tackle search most popular item.

So that's a fine line to start thanks for the question I think our search terms and what the guest is looking for changes seasonally all the time I've always seasonal products always nunez.

And always the hot items that are out there and so we can't really close you now look at our search really on a weekly basis and work with our merchant partners to share back those insights what I would tell you is over the years. The search in place of course are gonna input impact and we're going to see those over to the merchandising team for them as they're constantly looking for the right mix of our AUM.

Brand products and our national brand products and so we'll continue to to make sure we're feeding those or casinos or anything you would add.

And I think that's really well said and you'd be surprised at how quickly those ebb and flow week by week as the consumer went through so much change over the air and I think that's where the breadth of our multi category portfolio has played to our advantage that whether it's a a mask they are looking for our Xbox or it's.

These spring dress, we've been able to be there for them and all of those moments.

We've got a question towards the back.

Hey, Thanks. This is Eddie removed from Keybanc two quick ones for me I guess first.

On the food assortment, you've done a very impressive job, adding more food over the past couple of years I guess as you think about the incremental share opportunity are there more food you can add do you think it can become that weekly grocery destination and then as a follow up you know, sometimes when you head into kind of a sticky consumer environment, we see trade down focus on value are you seeing any leading indicators that they consume.

There is a feeling pressured thank you.

Rick why don't you start from a food standpoint, and we'll come back to some of the consumer trends, we're seeing right now sure.

Talk about food.

As I said before I have a lot of positive momentum on what we're seeing in the food business.

We continue to see opportunity to continue to grow as we think about our assortment.

And I would say, there's the real three key drivers of the growth that we see in the.

In the future. The first is the digital business, which is our same day services are industry, leading in general, but particularly relative to our competitive grocery competitive set it's a real step up not only from an experience standpoint from a convenience and ease perspective, I think John mentioned, the NPS scores, it's a differentiator relative to other.

Particularly grocers the second thing that I would say is different about our assortment, which you mentioned and the competition is our own brands are.

Good and gather only two years in and is already over $2 billion in sales. Our favorite day is brand new and developed during the pandemic and is already off to a really strong start and then we have market pantry, which is a little bit lower price point, but we think it will be very relevant during these inflationary times. So we think that is.

Our assortment of owned brands when we stacked it up to our competitors they are growing faster than grocery industry private label brands, We think thats. The third the second key driver and then the third I think will be seasons, and we talked about that a lot, but we have whether it's Easter Valentine's day, Halloween mother's day or upcoming Easter that's.

Where we do really really well in easter's coming up and I think targets you know one of the few places where you can get everything you need for the holiday you can get the eggs for Easter you can get the candy for Easter you can get the basket you can get home decor, and you can get the Easter dress and I think that's a real competitive advantage for us particularly versus a.

A lot of our grocery competitors yeah.

From a consumer standpoint, I'll start I'll, let Kristina jump in if you go back to what we saw in the fourth quarter and obviously, we saw comps up 9%, but it was driven by great traffic and we saw pretty balanced growth between both physical stores and digital so we clearly see a guest than a consumer who's shopping in both channels.

As we sit here today now we're listening very closely to the consumer and if theres anything I think we've learned over the last two years is just the resiliency. We are seeing in the U S consumer environment, but specifically, we know consumers are still worried about COVID-19 , yet, they're looking for that touch of normal in there.

So we saw that saw that play out during the Super Bowl Rick talked about some of the results, we delivered but that consumer and the target guest they wanted to be together with friends and family for the first time in a couple of years to enjoy the Super Bowl. We know we've got a consumer who is looking for value, but as Christina noted, they're looking for newness.

As well and anything new as exciting and showing up in that basket. There's clearly inflationary concerns that are starting to pop up in the conversation, but it's still a U S consumer with a pretty healthy balance sheet. So we're going to have to watch this carefully.

We know March April are going to be important timeframes as the consumer overlap some stimulus checks and childcare. So we're taking a cautious approach to the first quarter, but we continue to see a very resilient consumer who has a solid balance sheet and it was balancing that desire for value and concerns with inflation.

With a desire to find something new and just go back out and experience everyday life.

Oh, sorry.

Sorry, Joe Feldman Telsey Advisory group.

Wanted to go back to the sortation centers.

I may have missed but how many do you plan for this year and then beyond like it seems like you may only need one per major market based on the map that you put up but.

And then maybe the I don't know if you want to share the cost.

With us but to build it to hire people all of that.

Joe you know us better than that.

I figured I'd try we will by the end of next week or next month, we will have six of them open were thinking probably five more later this year and of course part of this you know little unknown.

Same supply chain problems that have impacted our ability to remodel and open new stores things are slower permits are slower everything slower.

But that's where we're headed and we think there's an opportunity over the next four or five years to continue to build that at least that pace, perhaps a little bit faster, but when you look at the major urban areas across the country lots of opportunity and I wouldn't say in the case of many cities. It will not be just one per city just the way you navigate.

Some cities in the way, they're carved up it makes that harder to do and so the opportunity for us to do several in the city is there for us, but but that's all down the road so you'll see us continue to build into it.

We probably have time for two more questions. So let me make sure we get some new hands.

Thanks, Kelly Bania from BMO capital.

Question about the longer term operating income outlook I think Michael you mentioned, you'll welcome the rate growth when it happens for the right reasons. So maybe just help us understand what are those right reasons.

I think the last two years of pretty instructive. The growth we saw over the last two years came from scale benefits. That's a more sustainable version of rate growth, but to be clear that's not the number in the P&L. We're optimizing for its profit dollar growth overtime, we would expect to find the fuel to fund the investments to power the topline and that's kind of the thing that's at the heart.

Of the algorithm.

But when we see sustainable rate growth, we'll welcome. It just like you saw over the last couple of years.

Alright.

Let's see.

Thanks, Greg Melick with Evercore ISI.

Follow up and then my question. The follow up is AUR. This year, if we think with inflation out there. How do you think AUR plays out this year in that guide.

A traffic and ticket or units yes.

I don't know if my Crystal ball is that clear Greg.

But the story that we've really seen what most recent quarter to start with is the incredible growth in traffic. There are some puts and takes in basket, but virtually all of our growth in Q4 came from traffic. So you know as you heard today will continue to be focused on protecting value and making sure that our price position is strong and that's working.

It's leading to deepening engagement, that's leading to more trips to target and so we're exactly AUR lands over the course of the year I think is going to be a journey will take together and we'll see but traffic has been the story for us still the trial and then maybe if a.

Three P fulfillment.

You've mentioned a little bit about extending the aisle with some vendors.

With Rondell doing well I guess I'd like to understand what is the right assortment for target both in store and online do we do we want to get to 10 million Skus do we need to as a curated are we selling rondell services to trusted vendors as opposed to United Airlines.

How do we think about that Kristina I might ask you to start and Gary I know you've got a point of view on this topic.

First and foremost our point of view on assortment is all about curation, it's making sure that the we understand the consumer and that we can craft an assortment that starts with a balance of freely.

Really well designed high quality and value owned brands coupled with the.

<unk>, leading national brands that consumers would expect to find by having a curated assortment. It fuels the stores as hubs model because there isn't this long extension that we have to fulfill from other parts of the network. We're using the inventory base of the source, which creates efficiencies, which create speed which create slower.

Costs.

Additionally, we think it's a guest benefit and the ability to navigate the assortment and navigate the paradox of choice is real and sell creating options that are much more relevant in a in a in a more tight.

Environment is important to us and that extends to our marketplace and sell care can you talk a little bit more about how we think about that but it's really a complement hand in glove, absolutely and it's in lockstep with them or with our merchant partners and our marketplace is truly differentiated because it is invite only and it will remain invite only as we think through.

Who are the right trusted partners that we are looking to actually complement our assortment with and then just to comment on your round out question. Similar story, there that growth that I talked about getting to $1 billion is largely with our vendor partners, who are finding incredible value within the guest data and insight that we have and we see a lot of headroom to grow.

With those trusted vendor partners as we think through the coming years ahead.

So I'll wrap up from here and I want to start by thanking all of you for joining us in person, we've really been looking forward to this it's been a long couple of years I Hope you walk away with a clear sense of our direction as a company the strategies that will guide us going forward that capabilities. We will continue to invest in the important role that our team will play in.

The unique culture that I believe really defines and separates us from many of our peers. So I hope you leave recognizing we are committed to being a growth company.

And that is a profitable growth company for years to come.

Stewards of capital and will provide great returns for shareholders, but I really appreciate your time your engagement today and we look forward to see you again in person next year. So thanks for joining us stay well stay safe and we hope to see you again soon.

[noise], Thank you for joining us.

Yes.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Yeah.

Okay.

Okay.

Yes.

Okay.

Okay.

Okay.

Yes.