Q1 2025 Target Corp Earnings Call

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Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the target Corporation first quarter earnings release conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will invite you to participate in a question and answer session at the close of prepared remarks, we will.

Speaker Change: The queue for Q&A session at that time, if you have a question you will need to press star one on your telephone as a reminder, this conference is being recorded Wednesday May 21, 2025, I would now like to turn the conference over to Mr. John Hulbert, Vice President Investor Relations. Please go ahead Sir.

Speaker Change: Good morning, everyone and thank you for joining us on our first quarter 2025 earnings conference call on the line with me today are Brian Cornell Chair and Chief Executive Officer, Rick Gomez, Chief Commercial Officer, Michael <unk>, Chief Operating Officer, and Jim Lee Chief Financial Officer.

Speaker Change: In a few minutes Bryan Rick Michael and Jim will provide their insights on our first quarter performance along with their outlook and priorities for the remainder of the year.

Speaker Change: During their remarks, we'll open the phone lines for a question and answer session.

Speaker Change: This morning, we're joined on this conference call by investors and others, who are listening to our comments via webcast. Following the call Jim and I will be available to answer your follow up questions and finally as a reminder, any forward looking statements that we make this morning are subject to risks and uncertainties, including those described in this morning's earnings press release and in our most recently filed.

Speaker Change: 10-K.

Speaker Change: Also in these remarks, we refer to non-GAAP financial measures, including adjusted earnings per share reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this mornings press release, which is posted on our Investor Relations website.

Speaker Change: With that I'll turn it over to Brian for his thoughts on the quarter and as priorities for the remainder of the year Brian.

Brian Cornell: Thanks, John and good morning, everyone.

Brian Cornell: As I begin today I want to pause and thank our team.

Brian Cornell: Throughout the quarter the target team of more than 400000 employees across the country stayed focus on what's most important.

Brian Cornell: Serving our guests.

Brian Cornell: The board each other.

Brian Cornell: And delivering trend style convenience and value.

Brian Cornell: Our target or roadmap for growth serves as a guide for bringing the best of our brand to life each day.

Brian Cornell: This includes our assortment of on trend affordable products, and an experience that prioritizes ease convenience and a personal touch with every interaction all at an incredible value.

Brian Cornell: These are the things that make target target and we remain confident that our strategy will allow us to continue bringing joy to millions of American families. While importantly, paving the way for long term profitable growth.

Brian Cornell: In the first quarter, our team and our business faced an exceptionally challenging environment.

Brian Cornell: Our performance with declines in both traffic and sales.

Brian Cornell: Notably in our discretionary categories.

Brian Cornell: For several years now we've seen pressure in our discretionary businesses.

Brian Cornell: Spending adjusted down from elevated levels during the pandemic and then moved further away in the face of historically high inflation in needs based categories.

Brian Cornell: On top of those ongoing challenges we faced several additional headwinds this quarter include.

Brian Cornell: Including five consecutive months of declining consumer confidence uncertainty regarding the impact of potential tariffs and the reaction to the updates we shared on belonging in January.

Brian Cornell: While we believe each of these factors played a role in our first quarter performance, we can't reliably estimate the impact of each one separately.

Brian Cornell: I wanted to be clear that we're not satisfied with this performance.

Brian Cornell: And we're moving with urgency to navigate through this period of volatility.

Brian Cornell: Throughout our operations, we're focused on consistency and reliability with an emphasis on retail fundamentals and.

Brian Cornell: And delivering a superior guest experience that features newness differentiation and value.

Brian Cornell: For the summer season, we're offering more than 10000 new items.

Brian Cornell: Starting at just one dollar.

Brian Cornell: And the popular bauxite playground, we will continue operating items at $1 $3 and $5.

Brian Cornell: And we're expanding this assortment to include beauty items, as well as trending snacks and beverages.

Brian Cornell: And by July we will shift to the critical back to school and college season.

Brian Cornell: Standing tall for value as we focus on supporting families during key life moments.

Brian Cornell: We're also finding new ways to move faster and operate differently, given that uncertainty and the pace of change are higher than ever.

Brian Cornell: This morning, we announced the formation of an enterprise acceleration office.

Brian Cornell: Michael will be leading as well as several organizational changes to bring even more clarity and speed to how we operate and advance our strategy across the company.

Brian Cornell: As I said in this morning's announcement this effort goes beyond improving efficiency.

Brian Cornell: With a focus on greater adaptability innovation resilience and ultimately growth.

Speaker Change: Based on his expertise and the insights he's gained for more than 20 years at this company.

Brian Cornell: Michael is the perfect leader for this work.

Brian Cornell: As Youll hear from Rick the merchandising team has been working tirelessly to mitigate the impact of tariffs.

Brian Cornell: And the difficulty level has been incredibly high.

Brian Cornell: Given the magnitude of the rates, we're facing and a high degree of uncertainty on how these rates and impacted categories might evolve.

Brian Cornell: As a company that aims to deliver great products and outstanding value.

Brian Cornell: We're focused on supporting American families as they manage their budgets.

Brian Cornell: We have many levers to use in mitigating the impact of tariffs and price is the very last resort.

Brian Cornell: Our strategy is to remain price competitive by leveraging the capabilities long standing relationships and the scale that set us apart for many of our retail peers.

Brian Cornell: For example, we're fortunate to have a sourcing team with decades of experience.

Brian Cornell: And strong partnerships with our global suppliers.

Brian Cornell: As we are engaging a contingency planning with those vendor partners, we're moving thoughtfully and contemplating a wide range of potential scenarios.

Brian Cornell: And we're building our plans to preserve maximum flexibility, while protecting our business in the face of massive potential costs.

Brian Cornell: At the same time, we remain committed to supporting this year's investment plans in support of our long term growth.

Brian Cornell: These investments include an outstanding pipeline of new stores ongoing remodels of existing locations and robust investments in technology and our supply chain.

Brian Cornell: Because of this company's long history of disciplined financial management.

Brian Cornell: We have a strong balance sheet and ample cash that will allow us to navigate through these near term challenges as we continue to invest in making us even stronger over time.

Brian Cornell: In planning for the remainder of the year, we believe it's prudent to expect that current topline pressures will continue in the near term.

Brian Cornell: However, the results in the quarter provided several key insights that reinforce our confidence in the underlying strength of our business.

Brian Cornell: And targets continued relevance with American consumers.

Brian Cornell: Among those high points, we saw mid single digit growth in our first party digital business this quarter.

Brian Cornell: Led by 36% growth in same day delivery powered by target Circle 360.

Brian Cornell: We also saw continued healthy growth and drive up.

Brian Cornell: Which now accounts for nearly half of our total digital sales.

Brian Cornell: And of course beyond the direct benefits of rising digital sales. They also fuel the growth of profitable services like Rondell.

Brian Cornell: Our retail business.

Brian Cornell: And target plus our third party digital marketplace.

Brian Cornell: Both of which saw double digit growth in Q1.

Brian Cornell: Target strength has been and will always be our products partnerships and incredible value.

Brian Cornell: Especially today as consumers feel increased pressure, we aim to deliver everyday discovery and delight.

Brian Cornell: This connection between target and our guests came through during key seasonal moments in the first quarter <unk>.

Brian Cornell: Including both the Valentine's day and Easter holidays.

In addition, we were pleased with the guest response to our most recent target circle week as we offered compelling promotions across multiple categories.

Brian Cornell: And of course, we were really pleased with the success of our limited time design partnership with Kate Spade.

Brian Cornell: Target has long been famous for these programs and.

Brian Cornell: <unk> sales results from the Kate Spade partnership were the strongest we've seen in a decade.

Brian Cornell: This highlights the power of the target brand.

Brian Cornell: Our continued style authority and our best in class design, and sourcing capabilities, which come together to deliver a singular combination of fashion quality and price.

Brian Cornell: Progress on inventory shrink was another bright spot in the quarter.

Brian Cornell: As rates continue to moderate from extreme levels, we encountered in 2022 and 2023.

Brian Cornell: And as Michael will highlight later, we're pleased with the performance of our long term investments, we're making in our business.

Brian Cornell: Including the return on our investments for new locations and the boost in traffic and sales from our store remodeling projects.

Brian Cornell: In a period of volatility and rapid change we are absolutely focused on what we do best providing the best retail experience for nearly 2000 communities, we're proud to serve.

Brian Cornell: We're a company that aims to bring joy to everyone every day and we're proud to be one of the largest employers in the United States.

Brian Cornell: We believe in creating opportunity for all and developing talent to fuel our business, which includes pathways for promotions.

Brian Cornell: Industry, leading pay and benefits and outstanding education and training.

Brian Cornell: We provide tuition assistance through our dream to be program with more than 30000 team members enrolling the program since its launch in 2023.

Brian Cornell: Simply put what.

Brian Cornell: What we do wouldn't be possible without the incredible target team.

Brian Cornell: Making meaningful connections within our communities is also part of being a great retailer and we take our commitment to serving the communities in which we operate seriously.

Brian Cornell: Our team volunteers 1 million hours, a year with local organizations and we will continue as we have more than 60 years.

Brian Cornell: Donate 5% of our profits back to the community.

Brian Cornell: And of course, we continue to work with a large and diverse base of vendors and suppliers ranging from big National brands to a host of small emerging brands, who help us to offer but one of a kind of assortment our guests expect from us.

Brian Cornell: Every day in everything we do we will continue to be anchored in the belief that creating an environment where people feel included supported and respected makes us a stronger company.

Brian Cornell: It helps us build and support our talented team.

Brian Cornell: Millions of guests in all 50 states and be a valued partner in the communities we serve.

Brian Cornell: As I get ready to turn the call over to Rick I want to pause and thank our team once again.

I'm proud of their resilience and long term focus.

Rick Gomez: I'm confident we're taking the right steps to accelerate our progress.

Brian Cornell: Deliver more.

Rick Gomez: What our guests love and Usher in the next chapter of target growth story with that I will turn the call over to Rick.

Rick Gomez: Thanks, Brian and good morning, everyone as Brian shared our team had to navigate through multiple challenges in the first quarter. Despite these challenges we saw some compelling proof points that our strategy continues to resonate with consumers.

As we've shared for multiple quarters consumers have been choice full and they are buying decisions and recent declines in consumer confidence have made them even more cautious they are focused on finding ways to save as they manage their family's budget. However, as we've noted before consumers are still making discretionary purchases when they find products at the right.

Rick Gomez: Intersection of style quality and value.

Rick Gomez: We saw these themes play out in our first quarter results, where guests focus their spending on seasonal assortments newness and compelling promotions Q1, net sales were down two 8%, reflecting a decline in traffic as well as a lower average basket within our six core merchandising categories. There are 35 divisions for which we measure market share.

Rick Gomez: We held or gained share in 15 of those 35 over the trailing three months with strong gains in apparel categories like women's swimwear performance and toddler as well as gains in seasonal merchandise books and produce in Florida. While we are pleased to see those positive results. Our goal is to hold or grow share across the majority of.

Rick Gomez: Of our assortment as such we are not satisfied with our first quarter performance and we are laser focused on improving these trends over time.

Rick Gomez: Target has long been known as the go to place for key moments, including holidays, the turning of the seasons and other celebrations in the first quarter topline trends got meaningfully stronger around Valentine's day and Easter. In addition, as weather has warmed up across the country. We are seeing momentum in categories like outdoor toys pool accessories and summer.

Rick Gomez: And beverage items and of course beyond seasonal moments. We also create unique to target collaborations like our latest design partnership Kate Spade for target target pioneered the idea of making fashion affordable for all and though we've been doing this for decades, our guests still love and eagerly await these collaborations is Brian <unk>.

Rick Gomez: Chaired the Kate Spade collection was the most successful limited time partnership we have had in more than a decade reinforcing target style authority and our ability to work with the most sought after designers.

Rick Gomez: It also showed that newness and style at irresistible price points can drive demand and otherwise soft discretionary categories. This is something we'll continue to lean into going forward.

Rick Gomez: The consumers arent, just seeking newness and value during seasonal moments. They want an unexpected everyday for example in toys and sporting goods, our expanded assortment of items priced under $20 is performing well as we look to help families find even more affordable joy at target.

And in apparel, we saw strength in categories like women's swim, where new owned brand offerings at competitive price points, beginning at just $12 provide the style and affordability consumers are looking for.

Rick Gomez: Another way, we deliver newness and value is through our target plus marketplace, where we have set ambitious goals to grow <unk> to $5 billion.

Rick Gomez: By 2030 by offering even more brands and products guests want and expect from target.

Rick Gomez: We're looking to achieve this across all our core categories with particular focus on home and apparel were breadth of assortment matters. Most to consumers. This quarter alone we grew target plus GMB by more than 20%, adding hundreds of new partners to the platform driving traffic and increasing conversion online.

Rick Gomez: Another way, we deliver value to our guests is through target circle and they responded enthusiastically to our recent target circle week, which offer compelling promotions on great products beyond the short term traffic and sales benefit these events help position target as a value player at a time when that's more important than ever.

Rick Gomez: Before turning to our plans for Q2, I want to pause and re emphasize that while we are encouraged by these bright spots. Our overall results are not delivering at the level. We want we have work to do and our teams are aligned and committed to improving our performance and returning this company to growth over time.

Rick Gomez: Looking ahead to the second quarter and beyond our key focus will be navigating the ever changing tariff landscape as we work to deliver on our business goals, while doing what we do best providing outstanding products at incredible prices.

Rick Gomez: Our teams have been hard at work to minimize tariff headwinds through multiple strategies, including negotiating with our vendor partners reevaluating assortment decisions changing country of production, where we are able adjusting order timing and where necessary adjusting prices.

Rick Gomez: We're building these plans with a premium on flexibility, allowing our team to read and react to changing tariff impacts and consumer trends as we navigate through the uncertainty.

Rick Gomez: All in these efforts are expected to offset the vast majority of the incremental tariff exposure thanks to the.

Rick Gomez: Credible work of our team.

Rick Gomez: But even as we plan for these current pressures to continue we're also placing smart bets in key areas focused on the latest styles trends and cultural moments given our strong affinity with Nintendo brand. We're excited for this summer's arrival of the Nintendo switch to one of the top retailers in the U S. For this launch and can't wait to bring joy to.

Rick Gomez: Families with its highly anticipated release.

Rick Gomez: Given our brand purpose to help all families discover the joy of everyday life throughout the summer season will be leaning in offering style forward mix-and-match red White and blue outfit options for the whole family and more than 10000, new summer items, starting at just one dollar and most of the assortment under $20.

And by the end of the second quarter, the focus shifts to the return to school routines with back to school and college, representing our second biggest season of the year, we're planning to deliver our unique mix of style and affordability.

Rick Gomez: And our back to school assortment, we're standing tall for value ensuring every student gets the supplies they need for a successful school year and for our college bound gas, we're creating an easy to shop assortment of on trend affordable mix and match items to personalize their dorm rooms.

Rick Gomez: Finally, as we focus on building engagement with new and existing target Circle 360 members. We're implementing changes to make same day delivery, even more affordable through an industry leading offering.

Rick Gomez: As you know for items delivered same day from target, we've never marked up prices and now we're extending that policy for all other retailers on the platform. Beginning this week, we've introduced no price markups on same day delivery for the more than 100 retailers available on ships marketplace.

Rick Gomez: Membership programs provide access to only one retailer and others offer deliveries for multiple retailers, but charge additional fees with target circle III 60 members get unlimited same day delivery with a personal shopper and access to ships marketplace of more than 100 other retailers like petco.

Rick Gomez: Cvs lows popular grocers and more.

Speaker Change: Before I turn things over to Michael I want to acknowledge just how hard the target team works to serve our guests to care for each other and to bring the target brand alive. You truly are the best team in retail and I, particularly want to say thank you for your tireless efforts to navigate the complexities and challenges of the current environment.

Speaker Change: Thank you for all you do for target and for the millions of families. We are proud to serve with that I'll turn the call over to Michael.

Michael: Thanks, Rick I'd like to start this morning, where Rick left off with a huge thank you to our team from our sourcing offices overseas to the teams in our stores and supply chain facilities and everyone at our headquarters. The current environment is incredibly challenging and you all continue to navigate it with determination agility and an unwavering focus.

Speaker Change: On serving our guests.

Michael: For all that you do every day.

Michael: Despite the challenges currently facing our business our teams are making meaningful progress against the priorities. We laid out at our recent financial community meeting, including improved in stocks and inventory reliability SaaS.

Michael: <unk> faster and more efficient digital fulfillment continued investments in both the in store and digital shopping experience and bringing the best of targets to more communities.

Michael: First regarding inventory reliability, we remain focused on improving overall in stock levels with a particular focus on top selling items and peak shopping periods and while there's still work to do we're making real progress in virtually every way we measure inventory availability from the overall purchase ability of our total assortment.

Michael: To the in stock position on key items, we've seen improvement year over year building on the increases we've delivered for well over a year now.

Michael: And thanks to the many efforts of our team we've continued to make very compelling progress on inventory shrink with far better results earlier in the year than we expected helping to improve our inventory our liability as well as our profitability.

Michael: One additional note on inventory, which was up 11% over last year given slower than expected sales. We are taking actions to right size inventory, which put some profit pressure on the business in Q1 and will likely lead to some incremental markdowns and receipt adjustment costs in the second quarter as well.

Michael: We believe these actions in the first half of this year will rebalance inventory well heading into the back half Jim will share more on this shortly.

Michael: Beyond inventory reliability, we also want to ensure that when our guests place digital orders they are <unk> to quickly and efficiently.

Michael: So I'm pleased that in Q1, our average click to deliver speed was nearly 20% faster compared to last year, one of many factors contributing to our strong digital growth.

Michael: And of course when guests are focused on speed, our same day services rise to the occasion one of many reasons. They grew another 5% over last year in the first quarter.

Michael: Altogether with continued growth of our same day services and the expansion of next day shipping availability across the country, we fulfilled more than 70% of all Q1 digital orders within a day a strong base for us to build upon.

Michael: One of the ways, we're increasing shipping speed is by utilizing ships network of independent drivers to deliver packages from sortation centers and in some cases directly from stores in.

Michael: In Q1 ship to drivers fulfilled 24% more packages year over year, speeding up delivery and reducing costs at the same time.

Michael: We see a lot of room to continue increasing the adoption of services like drive up and same day delivery. While we also expand next day shipping to more and more guests over time.

Michael: Among our same day services, we're seeing the most rapid growth in same day delivery powered by target circle, 360, which increased by more than 35% this quarter.

Michael: As guest engagement with this membership service continues to grow we're continually looking for ways to deliver even greater differentiation and value.

So as Rick shared earlier, we're excited about our latest benefit for target Circle 360 members no markups on same day delivery orders from target and now the more than 100 retailers included on ships marketplace.

Michael: And we know that the ability to get free deliveries for multiple retailers as valuable to our members.

Michael: Here's one way to think about it when we choose where to open physical stores. We are intentional about selecting locations that are convenient for our guests and situated near other prominent retailers.

Michael: This strategic placement not only increases visibility, but also drives relevance and foot traffic by aligning our brand with familiar and complementary shopping destinations.

Michael: We apply the same philosophy to target circle 360 <unk>.

Michael: The offering same day delivery from a wide variety of retailers through ships marketplace, we create a digital environment that mirrors the high traffic high relevance experience of a bustling retail center.

Michael: This proximity whether physical or virtual enhances discovery encourages cross shopping and builds affinity and relevance for the target brand.

Michael: And of course, we continue to invest in our physical stores opening new locations and updating existing ones not just to bring our latest strategies and ideas to life, but also to support the continued expansion of our digital business.

Michael: Now, we often get questions about how we allocate investments between our stores and our supply chain facilities and while we do invest in both types of assets separately. It is important to note that in an investment in our stores is also an investment in our supply chain due to our unique stores as hubs model. This.

Michael: This model works because of our differentiated assortment strategy and our proximity to consumers, allowing our stores to play a dual role serving as an inspiring shopping destination.

Michael: And is the primary source for fulfilling online orders.

Michael: As a result in the first quarter, 96% of our net sales volume was fulfilled by our stores.

Michael: This past quarter, we added three new store locations around the country and we're on track to open around 20 for the year. Additionally.

Michael: Additionally, given the strong returns on investment we see we've launched another wave of store remodel projects This spring and.

Michael: In fact for the store Remodels, we've completed in recent years, we've seen strong complex. Following the completion of these projects of 2% to 4% in the year following a remodel and a nearly 3% incremental lift in year, two as well another indication that our guests love newness, including in store shopping experience.

Michael: And in both our new and existing locations our store teams want to provide a warm friendly and helpful experience on every guest visit.

Michael: It's why we're encouraged to see increasing net promoter scores on top of already high ratings on metrics, including the ability to find products overall wait time at checkout and interactions with our team both while shopping and at our check lines.

Speaker Change: But as I said at our financial community meeting and I'll say again. This morning, we won't confuse progress with potential we have work to do.

Speaker Change: And as we announced earlier this morning, we're taking action to return our business to growth with greater speed and intention.

Speaker Change: As you heard from Brian I'll be leading a newly created acceleration office for the enterprise aimed at removing friction and enabling the team to make faster decisions in support of our growth.

Speaker Change: To be clear, we still firmly believe in our differentiated strategy, but in today's environment, we need to become more agile and move with greater speed.

Speaker Change: Through this office all partner with leaders across the organization to more boldly embrace and harness the power of technology and AI beyond what we already have to play.

Speaker Change: As a natural extension of our roadmap for growth, our priority will be enabling more efficient and cost effective ways to work.

Speaker Change: But this work goes beyond improving efficiency and includes finding ways to use assets more effectively and more intentionally prioritizing the work of our team, allowing them to move faster than we have in the past.

Speaker Change: For example, we have some compelling technology projects in flight that will modernize and streamline core inventory management and allocation processes. Our aim is to move them forward with pace.

Speaker Change: All are far more details to share over time, but for now I want to emphasize that our team is fully committed to this work. So we can more quickly deliver on our long term aspirations, we have for our business.

Speaker Change: So as I get ready to turn the call over to Jim I want to reiterate a point I made a few months ago and again. This morning. We are pleased with the progress we've made in support of our long term growth. We know we can achieve but we know we can do more faster.

Jim Lee: And there is no shortage of urgency and passion from this team to return to growth and solidify our position as a leader in American retail.

Jim Lee: With that I'll turn the call over to Jim.

Jim Lee: Thanks, Michael as Brian mentioned earlier, we faced several sources of pressure on the top line this quarter.

Speaker Change: Sales declined two 8% as a comparable sales decline of three 8% was partially offset by the benefit of new store sales and double digit growth in non merchandize sales among the drivers of our comp sales traffic declined two 4% while average ticket was down one 4%.

Speaker Change: First quarter GAAP EPS was $2 27, and included 97 cents of benefit from the favorable resolution of interchange fee litigation for which we were the plaintiff.

Speaker Change: Adjusted EPS, which excludes that 97 cents benefit was $1 30 compared to $2 three last year.

Speaker Change: On the gross margin line, our Q1 rate of 28, 2% was about 60 basis points lower than last year, reflecting about a point of pressure and a merchandising driven primarily by higher markdowns, along with about 80 basis points of pressure from digital fulfillment and supply chain, partially offset by about 120 basis points of favorability from lower inventory shrink.

Speaker Change: <unk>.

Speaker Change: On the SG&A line, our reported rate of 19, 3% was about 170 basis points lower than last year as the gains from the litigation settlements were recognized on this line.

Speaker Change: Excluding those gains are underlying first quarter SG&A rate was 21, 7% about 70 basis points higher than last year as pressure from sales deleverage and continued team investments were partially offset by the benefit of our cost improvement efforts.

Speaker Change: I want to pause and acknowledge the team's disciplined focus on productivity as underlying SG&A expenses, excluding the gains from litigation grew less than 1% compared with last year, even as we continued investing in team member pay and benefits.

Speaker Change: Our first quarter DNA rate of two 7% and was about 20 basis points higher than a year ago, reflecting a year over year increase in depreciation on capital projects as we ramp up activity from last year's pace.

Speaker Change: Altogether, our Q1 operating margin rate was six 2%, including about 250 basis points of benefit from the legal settlement.

Speaker Change: Turning now to capital deployment, our priorities remain the same as they've been for decades.

Speaker Change: Our first priority is to invest fully in our business and projects that meet our strategic and financial criteria.

Speaker Change: Second we look to support the dividend and increase it annually.

Speaker Change: Third we deploy any excess cash for share repurchases within the limits of our middle a credit ratings.

Speaker Change: Capex in the first quarter was $790 million and based on updated estimates of project timing. We're now expecting our full year Capex will be near the lower end of the $4 billion to $5 billion range, we laid out for the year.

Speaker Change: Regarding the second priority, we paid $510 million in dividends in the first quarter and will recommend that the board authorized a small increase in our quarterly dividend later this year.

Speaker Change: And finally, we deployed about $250 million for share repurchase in the first quarter retiring $2 2 million of our shares.

Speaker Change: However, with increasing uncertainty regarding the magnitude and timing of potential tariffs, we did not repurchase any shares in April <unk>.

Speaker Change: Recent news of moderating tariff rates has been very encouraging and may open the door for additional repurchase activity later in the year.

Speaker Change: Of course, the magnitude and timing of repurchases will be governed by our long held capital priorities and ratings calls.

Speaker Change: As we look ahead, we remain confident in the underlying health of our business and our strategy and we have a clear plan for navigating through this challenging environment.

Speaker Change: When we provided our initial guidance back in March we said that we expected disproportionate pressure in the first half of the year, most notably in the first quarter.

Speaker Change: More specifically, we said that we expected to see Q1 pressure from team member investments healthcare general liability and startup costs from our capital investments.

Speaker Change: Together these items accounted for about 50, a year over year pressure on our first quarter adjusted EPS and.

Speaker Change: In addition, we faced pressure from lower than expected sales, which resulted in higher than expected markdowns.

Speaker Change: Offsetting these pressures were significant savings from lower inventory shrink and the benefit of cost efficiency and productivity efforts on the SG&A line.

Speaker Change: We expect many of those Q1 themes to persist in the second quarter with headwinds, including continued sales pressure tariff impacts and some additional cost to adjust inventory and receipts.

Speaker Change: With continued benefits from lower shrink and productivity gains.

Speaker Change: In the back half of the year, we will be lapping easier comparisons from 2024 and expect to have inventory and receipt adjustment costs behind us.

Speaker Change: For the full year, we believe it's prudent to plan for a low single digit decline in our sales in line with our first quarter performance.

Speaker Change: Based on these lower expected sales, we anticipate downward pressure on profitability with meaningful offsets from lower shrink and cost initiatives.

Speaker Change: Altogether, we've updated our adjusted EPS guidance to an expected range of about 7% to $9 for the full year.

Speaker Change: This wider range reflects the expected impact of tariffs and heightened uncertainty regarding the economy and consumer spending.

Speaker Change: In terms of GAAP EPS, our updated range is about one dollar higher from $8 to $10 due to gains we recognized from the litigation settlements importantly.

Speaker Change: Importantly, our updated full year adjusted EPS range includes a number of near term costs that we don't expect to repeat in future years, including actions in response to tariff announcements and inventory and receipt adjustment costs on softer than expected sales.

Speaker Change: The expected impact of these headwinds is similar in magnitude to the offsetting GAAP EPS benefit from the litigation settlement.

Speaker Change: As such we believe this year's expected GAAP EPS range is a better reflection of the ongoing profitability of our business.

Speaker Change: In the near term given the challenges we're facing we're managing the business with two overarching priorities for the year.

Speaker Change: The first is to ensure that we deliver solid performance in 2025 with shrink and productivity improvements offsetting the impact of softer than expected sales, while best positioning our business for meaningfully better results in 2026 and beyond.

Speaker Change: We will do this by focusing on the appropriate growth drivers managing our cost to match the pace of sales and ensuring we exit 2025 in a healthy position in terms of profit margins and inventory levels.

Speaker Change: The other priority is to continue investing in our business, including in our stores distribution centers and in technology, including AI to ensure we're positioned to deliver the long term profitable growth, we know our business can deliver overtime.

Speaker Change: I wanted to join the other speakers this morning, and thanking our team both for their commitment to serving our guests and our disciplined focus on productivity and efficiency in a highly challenging environment.

Speaker Change: I also want to reiterate some of the bright spots you've heard about this morning, including digital growth of around 5% led by 36% growth in same day delivery encouraging performance during seasonal moments like Valentine's day, Easter and most recently mother's day, holding or gaining share in just under half of the categories. We track.

Speaker Change: The best performance of a designer partnership in a decade and continued strong returns on our investments in new stores Remodels and technology.

Speaker Change: We're looking to build on these bright spots in the quarters and years ahead, while increasing our speed and agility under Michaels leadership of the acceleration office.

Speaker Change: And while a volatile trade environment will likely remain a challenge for a while longer we're fortunate to have a strong and experienced global sourcing team and a healthy balance sheet that will allow us to weather significant volatility and continue to invest in our business, while others in a weaker position may struggle.

Speaker Change: We're confident that we continue to focus on the long game, we will benefit from meaningful growth and market share opportunities in the years ahead.

Brian Cornell: Now I'll turn the call back over to Brian for some closing remarks.

Speaker Change: Thanks, Jim.

Speaker Change: Before we turn to your questions I want to emphasize a few things you've heard from us today.

Speaker Change: First while we're not satisfied with our current performance.

Our confident in our strategy and our ability to deliver long term profitable growth.

Speaker Change: By bringing together our cross category mix of National brands owned brands and unique partnerships.

Speaker Change: With an experience that prioritizes ease value and a personal touch.

Speaker Change: We are delivering the everyday discovery and delight that makes target target, while modernizing our approach for todays consumer.

Speaker Change: This is lee leaned into our competitive strengths to build the industry, leading fulfillment model. We have today when they continued to drive strong digital sales and growth in same day services like drive up and same day delivery powered by target Circle 360.

We're leaning into those same strengths to further differentiate our assortment and experiences with investments in target circle, Rundale target plus and more.

Speaker Change: Which leads me to my second point, we are committed to delivering on our strategic priorities faster.

But the enterprise acceleration office, we're changing how we operate to create the conditions for our team to advance our priorities more quickly and we remain adaptable to the changing landscape for our business.

Speaker Change: This will not only help us meet the demands of today's environment, but enhance our performance for years to come.

Speaker Change: And finally.

Brian Cornell: I want to emphasize that target is well prepared to navigate the near term challenges of today, while continuing to invest in the future.

Brian Cornell: We are in the fortunate position of having the scale relationships and balance sheet to weather uncertainty with a focus on delivering value to our guests.

Brian Cornell: At the same time, we'll keep investing in our stores supply chain and technology. So that we are well positioned to serve guests both today and over time.

Brian Cornell: And our unwavering commitment to bring joy to everyone. Every day, we will continue to guide everything we do.

Brian Cornell: All of this is possible because of our team and I appreciate all they've done and continue to do to support our guests and each other.

Brian Cornell: So today <unk>.

Brian Cornell: Even as I'm not satisfied with our Q1 results.

Brian Cornell: I am confident in our strategy the actions, we're taking to accelerate that strategy and the ability of our team to move our business forward and emerge.

Brian Cornell: A stronger company than before.

Brian Cornell: With that we'll open up the line for Q&A now, Rick Michael Jim and I will be happy to take your questions.

Brian Cornell: Thank you we will now begin the question and answer session to ask a question. Please press star followed by one to withdraw your request press Star kill.

Speaker Change: Our first question will come from Christopher <unk> with Jpmorgan. Your line is open.

Brian Cornell: Thanks.

Brian Cornell: Thanks, and good morning, everybody.

Speaker Change: My first question is a little bit on the guidance.

Speaker Change: Is your expectation that comps turn positive and in back half or by the fourth quarter and on the gross margin line, where the inventory adjustment cost essentially be behind you such that in the back half the shrink tailwind.

Speaker Change: And advertising and so forth will allow gross margins to be up thank you.

Jim Lee: Jim go ahead.

Jim Lee: Yes sure Chris.

Speaker Change: On the comps as I indicated we expect to have low single digit declines for the balance of the year and that would include Q4.

Jim Lee: And as Michael mentioned on the call the inventory risk.

Jim Lee: We receive adjustment costs, we expect to.

Jim Lee: Occur mostly in the first half of the year and then we will get through that by the second half of the year.

Jim Lee: Got that got you and then on the shrink line that that $1 20. It seems like that would suggest you are pretty close to getting.

Jim Lee: Back to 2019 in terms of recapturing all the shrink.

Jim Lee: Is that $1 20, a good number to think about for the rest of the year or was there some sort of a was there a catch up adjustment that happened in the first quarter that doesn't persist into the balance of the year. Thank you.

Jim Lee: Chris you got that right I think there is a element of catch up and as we do the store count that gets to the 120 basis points of shrink upside for the balance of the year you can expect that we'll recover that.

Vast majority of the shrink that we saw the headwinds we saw over the last couple of years.

Jim Lee: And I guess any quantification of what that is.

Jim Lee: As you recall.

Jim Lee: Try to claw back 120 basis points of headwinds, we clawed back about 40 last year and we look like we will.

Jim Lee: Cover the vast majority of that.

Jim Lee: So the balance <unk> got it.

Jim Lee: Have a great rest of the spring. Thank you.

Speaker Change: Thanks, Chris.

Speaker Change: Thank you. Our next question comes from Kate Mcshane with Goldman Sachs. Your line is open.

Kate Mcshane: Hi, good morning, Thanks for taking our question.

Kate Mcshane: I wanted to ask about Caris, Rick mentioned that your efforts are expected to offset the vast majority of the incremental tariff exposure, but can you talk a little bit more about how youre going about that and what your view is on prices in the back half and any demand elasticity and when it comes to what we see in the stores for holiday with.

Kate Mcshane: You expect it to look much different versus previous years.

Speaker Change: Brett do you want to provide some color on tariffs I'm sure he'd be happy to.

Kate Mcshane: And I think I'd start by saying.

Speaker Change: As we think through and navigate tariffs. The first thing that we are committing to is to deliver high quality products at affordable prices and that really is our north star and our teams have been working very hard to offset the vast majority of the tariffs and we're doing that because they are able to do that because of target size and scale.

Speaker Change: Our multi category business, which gives us flexibility.

Speaker Change: The partnerships that we have built with our vendors and suppliers and then our best in class Global sourcing team has put us in a good position to be able to navigate these tariffs.

Speaker Change: The strategy that the teams are employing as we speak include diversifying our country of production half of what we sell comes from the U S. But beyond that we have the most control of where we produce when it comes to our own brands.

Speaker Change: And with our own brands, we have been on a multiyear journey to diversify our countries of production so going back to 2017, we were 60% coming out of China.

Speaker Change: Got that down to 30% and we are well on our way to be less than 25% by the end of next year.

Speaker Change: We are expanding into new countries Asia as.

Speaker Change: As well as the western hemisphere, but I think it is important to note that we're also exploring opportunities here in the U S.

Speaker Change: The other strategy that the team is employing is evolving our assortment, we talked a little bit about this in the prepared comments.

But bullseye is plagued out I think is a great example is at the front of the store, it's the section where guests come in and they look to discover fun season, low priced items and we have made a commitment to keep those at $1 $3 $5. It's important to the brand, but it is important to the guest.

Speaker Change: So to do that we will evolve the assortment and we brought in some new trending beauty items and we've also brought in some new seasonal food and beverage items.

Speaker Change: And then the last point I would say is we are.

Speaker Change: Our partnering.

Speaker Change: Very closely with our vendors and our suppliers to ensure that we are able to provide the best value that we can for the consumer.

Speaker Change: So through all of those strategies, we feel that we can offset the vast majority of the tariff impact.

Speaker Change: Hey, that's almost build on.

Speaker Change: Several of <unk> comment I think we all know the tariff environment right now is still very uncertain and we're certainly working and looking for greater clarity around trade agreements and with a long term tariff rates will be.

Speaker Change: But I want to recognize the work that <unk> team has done Michael's team Jim's team in an environment, where you can imagine lots of scenario planning, but with a focus on delivering what's best for our consumer in this environment, making sure we leverage our multi category portfolio our own brands the experience of our sourcing team and making sure that we're delivering.

Speaker Change: Newness and value in remaining price competitive it is.

Speaker Change: Environment. This rapidly changing so we'll continue to provide updates as we go forward as we mitigate through the tariff uncertainty, but I think the teams have done a tremendous job in making sure. We start with the consumer we continue to deliver great product great value and remain price competitive in this environment.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question comes from <unk> <unk> with Oppenheimer. Your line is open.

Speaker Change: Good morning, and thanks for taking my question. So I just wanted to go back to in store comp trends. So as you look forward what are the some of the key efforts tactics to help drive stronger traffic in store trends and then as you look at your business. How do you feel about your price gaps and price positioning.

Speaker Change: I'm happy to start and retention as we sit here today and you heard this from Michael you've heard this from Rick.

Speaker Change: We start with a focus on good retail fundamentals, we want to make sure in this environment, where consistent reliable that's code for making sure. We're in stock every time you shop.

Speaker Change: And we've got to make sure we provide a great in store experience and that starts with great Assortments, great newness and great value and we let it be really laser focused on providing a great in store experience every time, our guests shop.

Speaker Change: Michael Rick their entire teams we are focused on this each and every day, but it starts with great retail fundamentals, making sure we're focused on managing inventory effectively continuing to provide the great service. Our guests are looking for but it's that combination as Rick talked about we want to make sure.

Speaker Change: Style trends fashion that <unk> magic is something we lead with and we complement that with great essentials, great food and beverage and great execution, each and every day.

Jim Lee: Yes, I mean, just to build on that a little bit Brian.

Jim Lee: We set we have said that we werent happy with our performance in the first quarter, but there were some bright spots.

Jim Lee: When we saw that we brought style and trend and high quality product at an affordable price. The consumer responded and we saw that in with.

Kate Mcshane: With Kate Spade.

And delivering kind of delivering the biggest designer collaboration that we've had in over a decade. We also saw that when it came to Valentine's day, Easter and more recently mother's day that target continues to be the go to destination for seasons. So we're excited for our plans for Q2, because we're going to take that.

Learnings and we're going to lean into that and drive traffic and sales in the second quarter. We are going to celebrate 100 days of summer for Memorial day, all the way to Labor day, we're going to be launching 10000, new items, starting at one dollar with the majority under 20.

Speaker Change: Going to be taking sharing our take on Americana Americana done the Taj Ewe Red White and blue for the whole apparel for the whole family that looks terrific.

Speaker Change: You'll have in store events every Saturday in June and we're going to have increases in summer media to drive traffic to those events and to drive traffic to the store and to our site.

Speaker Change: And then of course, we've got a couple of really big launches. This summer that we're excited about the first will be Nintendo switch to and based on the preorders.

Kind of excitement for this and we plan to be the retail destination for all things Nintendo switch.

Speaker Change: And then the other big launch that we have as champion and champion is really the epitome of tower Jay its stylish sportswear for the whole family at really affordable prices, and we think thats going to be a big hit with the consumer as well. So we're taking the learnings from Q1 and we're leaning in big time in Q.

Speaker Change: Two to drive traffic and to drive improved performance I might just build on that a little bit as well to emphasize the point, Brian started with those fundamentals matter I mean, we know some of it makes the target experience special is a great in store experience and the team navigated a lot of challenges in the first quarter.

Speaker Change: Nits that tough backdrop, we made progress on some of the goals that we set out at our financial community meeting in virtually every way we measure in stocks were stronger this year than we were last year.

Speaker Change: Look really closely at what our guests are telling us they are seeing in terms of experience and we saw some nice steps forward in the measures we use from our net promoter score perspective to see progress. There and then we are laying a good foundation that will serve us well in the balance of this year.

Speaker Change: Beyond in places, where we're getting faster with shifting that 20% increase year over year and our click to deliver speed that's going to be a benefit our guests are going to see for months and months to come and so a huge thanks to the team for making that progress. We said at the start of the year, we had some work to do.

Speaker Change: It's to a higher bar on some of those fundamentals and we took a nice step forward in the first quarter and we're not done.

Speaker Change: And I think there was.

Speaker Change: Part of the question was also price gaps.

Speaker Change: And the question, but we want to go back and cover that in what I would say on price gaps is.

Speaker Change: First and foremost we are very committed to delivering value to the gas and to deliver competitive pricing and we watch competitive pricing very closely and we watch price gaps for now we are comfortable with where our price gaps are.

Speaker Change: I do think it is important to think of value more broadly than just price.

Speaker Change: We think about it in a lot of different ways and one way in particular is with target circle 360 is how we deliver value with promotions.

Speaker Change: And one of the things we're really excited about right now is a new benefit that we're adding to target circle $3 six to eight now we have never had markups for same day delivery of target orders.

Speaker Change: Now we're going to offer no markups are hundreds of retailers on the ship platform. This is going to offer incredible value as well as ease and convenience for our members. So it's just important to think about value more broadly we like to think of the <unk> value at price plus dial in EES.

Speaker Change: Damian.

Speaker Change: Thank you for all the color.

Speaker Change: Thank you. Our next question comes from Michael Lasser with UBS. Please go ahead.

Michael Lasser: Good morning. Thank you so much for taking my question in order to address some of the challenges.

Michael Lasser: Necessary in order to diagnose.

Michael Lasser: The problem is it right to characterize.

Michael Lasser: The challenge that target has experienced in the last few years.

Is that other retailers have.

Michael Lasser: Caught up and address some of the differentiation and quad.

Michael Lasser: Qualities that have made target unique and target is trying to catch up.

Michael Lasser: <unk> has become less consistent and now to try and address these issues. The focus is on improving execution is that right and is it.

Michael Lasser: Thank you very much and then I have a follow up.

Michael Lasser: Michael It's a great question I think we've talked about that quite a bit this morning.

Speaker Change: Mike will talk about it starts with retail fundamentals.

Speaker Change: So we've got to be reliable, we have got to be consistent we've got to make sure. We are managing inventory effectively in this environment. We've got to continue to make progress.

Speaker Change: With shrink those are fundamentals each and every day that are embedded in our business rich talked about the importance of blending noon.

Speaker Change: Newness with great Assortments, bringing that style that trend that charge a magic forward each and every day, that's part of the value equation, we are going to be delivering.

Speaker Change: No we've got to continue to invest and accelerate our digital performance.

Speaker Change: Michael's talked about the additional speed, we've added rich talked about the additional benefits where any of the target circle 360 <unk>. Those are fundamental we've got to continue to make sure we're investing in growing our retail media business.

Speaker Change: Plus.

Speaker Change: And embedding technology, Michael in everything we do so you know as I do retail is a world of fast followers, we plan to continue to set the pace.

Speaker Change: Those key seasonal moments those limited time offers the newness, we can bring to our assortment that's what separates target from our competition, but each and every day, we've got to be reliable, we better be consistent we want to make it easy and exciting for our guests to shop and those are the things we wake up every day focused on.

Speaker Change: We know that when we deliver the Taj a magic the consumer responds and if you think about this past quarter, we compete in 35 categories.

Speaker Change: Of those 35 categories, we gained or held share in 15.

Speaker Change: So we would've we aim our goal is to do better than that is to hold or gain share in the majority, but we did it holding gain and 15 categories that cut across both everyday categories like beverages produce floral.

Speaker Change: But also discretionary categories like women's swim performance toddler apparel and the common theme is when we deliver newness at a great value. We see strong performance. So I'll give you. Some examples that we're really excited about and our home business, we launched parachute, which is a DTC.

Speaker Change: <unk> a more premium brand. It is doing really well, we just launched new fabric new colors, new plants and Parison. It's also doing well, we launched Disney and Marvel collections of our pillow Fort and again very positive response from from the consumer so when we.

Speaker Change: We can continue to deliver that on trend style forward product at an affordable price, we see the consumer respond even in some of these discretionary categories, which are challenged so that's what we're going to be leaning into and doing more I'll give you one more example.

Speaker Change: Because it's a favorite one of mine just in time for mother's day, we launched good little garden, which is a floral brand and the business.

Speaker Change: To pick off double digit growth six dollar bouquets, and we're seeing double digit growth is continuing well beyond mother's day and Thats. What we just have to continue to do more of is bring that charge a magic.

Speaker Change: Maybe just to add one more thought there you heard Brian used the word pace and just to connect to the acceleration office that we're standing up the word acceleration is quite intentionally picked you can hear what powers the strategy and the newness Rick talked about the fundamentals that Brian and I have talked about.

Speaker Change: Got a strategy that is built for growth, we need to move down that path faster and with more pace and so the work that we'll be doing with the acceleration office and more to come as we get into that work will be about streamlining how we operate and fast tracking critical worth it work in areas like technology that will help us accelerate with space with pace down.

Speaker Change: And that strategy, Michael I'll finish with the point that you've heard Rick talk about before you've heard care. So that is to talk about and I do think it's one of the things that drives differentiation of target and it always has and it is that magic mix.

Speaker Change: <unk> National brands.

Speaker Change: Our very unique owned brand portfolio that now exceeds $31 billion.

Speaker Change: And the fact that we are a destination for those emerging brands that our guests love to discover a target those are areas, we'll always lean into but that magic mix of our national brands are unique owned brands with many billion dollar brands in our portfolio and the fact that we're a destination for those new disk.

Speaker Change: February brands those are things, we've got to constantly be focusing on because that's what separates toric.

Speaker Change: So many of our competitors.

Speaker Change: Understood if I could just add one quick follow up question. The big debate on the heels of your result, this morning isn't whether target properly derisked.

Speaker Change: The outlook for the remainder of the year. It seems like the message is we just streamlined what happened in the first quarter to the rest of the year, but the environment may not be as favorable as it was in the rest of the year and there may be more investment necessary over the next couple of quarters. So how would you frame the downside.

Speaker Change: Or at least the potential of that.

Speaker Change: The guidance has sufficiently been derisked. Thank you very much.

Jim Lee: Hey, Michael It's Jim here, Yes, I think you framed it up correct.

Speaker Change: Despite as we look at the balance of the year, we have taken a cautious outlook for our sales outlook as we look at low single digit declines for balance of the year, but the but the headwinds or the sorry, the tailwind, we're seeing from shrink and productivity and what we will expect to see from the enterprise acceleration office and just moving faster there is going to give us the oxygen to ensure that we continue.

Speaker Change: To invest behind our brands and invest in our capital priorities as well.

Speaker Change: Operator, we are in line for one last question. This morning.

Speaker Change: Thank you our last question comes from Edward Kelly with Wells Fargo. Your line is open.

Edward Kelly: Yes, hi, good morning. Thank you for taking my question I wanted to follow up on guidance and tariffs and I just wanted to make sure that we're clear on what's in the guidance are you, saying that seven to $9 includes the 30% tariff on China that most of the offset.

Edward Kelly: Can take place without pricing in that year.

Edward Kelly: Confidence in hitting that target.

Edward Kelly: That guidance is.

Speaker Change: Hi, I think we're trying to do is just make sure we properly understand.

Speaker Change: And assess the risk related to pricing and elasticity and any potential markdowns.

Speaker Change: If you need to take greater pricing action.

Brian Cornell: And it's a broad based question, but I'll start and then Jim can certainly add some additional color as we sit here today, we have been certainly contemplating the impact of tariffs on our business in the current tariff rates or built into the scenarios, we have been working with.

Speaker Change: Ben.

Speaker Change: Looking at that inventory management over the balance of the year, how will play pricing and promotion as all bundled into our current guidance and I think we've taken a very conservative approach as we think about inventory management, how we're going to price and promote in this environment, but obviously there is still lots of uncertainty, but the wide range of our guidance for the full year.

Speaker Change: Year, I think gives us the flexibility to make sure that we can take the actions that are built into our plan.

Speaker Change: And to build on that range.

Speaker Change: A range of $709 includes both uncertainty around consumer confidence.

Speaker Change: On discretionary in particular and potential impacts from tariffs we have been playing.

Rick Gomez: As Rick mentioned in detail as we've been ensuring that we are really agile and flexible across a range of scenarios on tariffs and we feel pretty comfortable that we can mitigate the vast majority of those impacts across a sort of a wide range of those outcomes.

Rick Gomez: Alright, operator that includes our first quarter call I appreciate everyone joining us today, and we look forward to talking to you in the coming weeks.

Rick Gomez: Goodbye.