Brian Cornell: Ed, it’s a great question. I’m happy to start. And actually, over the last couple of years, you’ve seen us move from a focus on small stores and we can talk about the performance there to more larger size stores as we see new opportunities and catchments where we haven’t competed in the past. And we’ve been very pleased with performance of these new full-size stores, as well as the continued performance in urban centers and on college campuses. So, as we look at our pipeline going forward, we recognize there’s opportunities for more full-size stores, extend our proximity, bring the best of Target into some new trading areas, and as part of that, you will see us continue to expand our food and beverage offering.
Rick talked about the progress we’ve seen in food and beverage, in adding over $8 billion in the last couple of years, and the strength of a brand like Good & Gather. And for many of you who are tracking the consumer-packaged goods industry, there aren’t a lot of $4 billion brands out there. And we launched that brand just prior to the pandemic, and we just continue to see the steady growth and how our guests react to the quality and value we bring with Good & Gather. So, we’re excited about the pipeline, it will be more larger size stores, there will be a broader food offering, and we’re gonna be moving into trade areas where we can pick up incremental volume and market share because we, in many cases, just haven’t competed in these trade areas in the past.
Edward Yruma: Michael, you want to talk about some of the returns we’re seeing with some of our smaller stores?
Michael Fiddelke: Yes, we feel really good about the returns of those small stores and it’s great to have that flexibility in kind of our toolbox of what’s the right thing to build for the opportunity in a specific market. And to be clear, going forward, if the right opportunity can be fit with a 25,000 square foot box that brings us closer to a college campus or an urban center, we know how to do that. We like the returns and we’ll lean in there. But as we step back and look at what that pipeline looks like in total, it’s actually the big box stores where we’re able to bring the best of Target that are bubbling to the top in terms of where we expect returns to be strongest. And so, we’ll lean in to that shift over time. And if our properties team was here on the stage with us, they could roll out a map of the U.S. and show a bunch of main and main locations where we’d love to bring Targets to new communities and we feel good about what that pipeline looks like.
Brian Cornell: And I’d add three more points as we think about small formats, and we’re here in Manhattan. Ten years ago, we really didn’t have a brand presence in Manhattan. Today, we have over a dozen locations and we’re in many of the different neighborhoods across the city. We’ve now been connecting with a consumer that we couldn’t reach in the past, and we’re gonna build a long-term relationship there. We’re on many college campuses across the country. We know the value of building a connection with college students while they’re on campus and the lifelong benefits that’s gonna provide for our brand. As they move into their first apartment or have their first child and start their families. And one of the other things, and I’ll let Christina build on it, is the work we’ve done with smaller formats has allowed us to understand a lot more about segmentation and getting the assortment right geography by geography.
So, as we move into new markets, we’re gonna get much better at segmentation, having the right assortment that reflects the demand in those local markets. So, there have been three really important benefits of our small format journey. We’re touching new cities where we didn’t have a presence in the past. We’ll build a lifelong connection with college students, and we’ve learned a lot more about segmenting our assortment.
Christina Hennington: Yeah. The only thing I’d add, even the lifelong relationship with college students, you heard Jill be very intentional. We actually seek to make sure that we are really relevant at certain, life stages, especially early on in, our consumers’ lives. Think about the strength that we have in a business, like baby, then we migrate them to toys, then we migrate them into video games and or into, juniors. And then having them presence, we do very well at back to school and back to college time frames. It’s very intentional in making sure that our brand stays in touch with families through every life stage. College is the natural next step in that phase and then, of course, back to childbirth. So, afterwards. And so that’s been very intentional.
But then to build back on segmentation opportunities, yeah, we’ve learned a lot. I mean, these boxes are small. They’re difficult to operate. We certainly have to cut the SKU count intensively and we have to study the microenvironment of competitors. And so, this ability to formulate the right assortment strategy for that community has taught us a lot about the potential to expand that further into our larger size boxes. And we see tons of upside and potential in more sophisticated segmentation and allocation strategies that allow us to optimize the local potential.
Brian Cornell: Cara, one of the things you and I have talked a lot a lot is as we open up new stores, there’s certainly a physical store component. We drive a lot of new revenue, but there’s also benefits from a digital standpoint. As we introduce the brand to new communities. You want to expand on some of the things we’ve learned?
Cara Sylvester: Absolutely. We talk a lot about digital influence sales. We know how consumers are shopping today and, so many of us, right, are starting even if you love shopping and only purchase in stores, you’re using our app to check out what’s new, to see if something is in stock, etc. So, we understand the power of digitally influenced store sales. What we also see though is the power of store influenced digital sales because we know some guests are browsing in stores and actually are pulling up their app right while they’re in the store and having, impact digitally. We certainly also see as we enter new markets the power of our same day services. That has been a shining star for us across the entire digital portfolio.
I talked in my remarks about why that is in terms of the relationship that we have and once, guests try our same day services, they love it. It is sticky in their lives. We are literally making their lives better, so we’ll continue to build on that. But that’s another great example.
Michael Fiddelke: Alright. We’ve got time for a couple more questions. Let’s go up here.
Robert Drbul: Hi. It’s Robert Drbul, Guggenheim Securities. I just wondered if we could spend a few minutes on gross margin, maybe Q4 buckets and the performance detail around that, your assumptions in 2024 for the full year? And then curious if you could share the financial implications especially around gross margin on target 360, your assumptions for the rollout for this year?
Brian Cornell: Well, Michael, this is a surprise. We’ve made it all the way to the last few minutes of our conference today and this is the first time we’ve had a question about gross margin.
Michael Fiddelke: Excited to get the question as always. Well, I can start by unpacking a little bit what we saw in Q4 and there’s some consistent themes to what we saw in the broader part of the year because the theme of gross margin recovery this year and I think Q4 and the year, we were just shy of three percentage points of improvement in gross margin, better inventory management. We saved a lot of markdowns and costs that were associated with some of the inventory challenges that we had a couple of years ago. So, on a year over year basis, that’s a big source of improvement. Within there too, freight and transportation is in a much better place today from a cost perspective. Not all the way back to 2019 levels, but on a year-over-year basis, another significant source of improvement.
In addition, we also see benefit from digital and supply chain, I mean to the tune of I think 50 basis points in the right direction for the quarter the year. And that’s a combination of being more productive as inventory levels have been better managed and a little bit of tailwind from fewer brown boxes shipped with our brown box business being down on a year over year basis. As we look ahead to next year, all of our best assumptions are wrapped into the EPS guidance we’ve given and a little bit of deleveraging given a cautious view on the top line with some continued improvement in gross margin, we think is going to be the right recipe going forward. When it comes to Target Circle, instead of speaking to any specific assumption within that business case, I think of Target Circle as about growth.
When we meet our guests with the right value proposition in a free loyalty program and the right value proposition in Target delivered to your doorstep through Target 360. And if you’re looking for 5% more every day, we’ve got a Target Circle card for you. All of that’s about stronger relevancy and growth. And so, the line of the P&L I’m most excited about from a Target Circle standpoint is growth. And time and time again, if we think about the P&L through the lens of the guest, we get to the right decisions. It costs us a little bit more to serve a drive-up order than it does an in-store trip. When guests start using drive up, we’ve described it before, it continues to be true, they spend 20% to 30% more on Target thereafter. And so we’re making decisions of what we think drives the most value and growth in total.
Ivan Feinseth: Ivan Feinseth, Tigress Financial Partners. Thank you for taking my question, and congratulations on the great results out this morning. I have three questions. First, Cara, in, thinking about, like, store layout and remodel. Like, for example, in my local Target, you know, food is on, like, the left side, but yet cookware is all the way on the other side of the store. And sometimes, you know, when I’m purchasing food, I find the need I may need some cookware to do the dish I’m looking to cook as an example. And, second is information that you get from using Shipt where a Shipt customer will go outside to other retailers. How much do you take on that information to decide what you’re gonna carry in the stores? And then if they’re using, let’s say, buying premium brand, how high of a premium product point do you see yourself going?
Because there are some of your competitors that are using value priced food to bring in customers, but those customers are buying premium priced products. And then third, on the partnership, what other areas do you see and how far of a premium level would you go in adding partnerships within your store?
Cara Sylvester: There’s a lot there.
Brian Cornell: Cara, why don’t you start with partnerships? And Christina, why don’t you talk about some of the learning that we have around how we build assortments?
Cara Sylvester: Absolutely. And so, as I think about, the introduction of Target Circle to 360, we are absolutely, looking at a wide range of what partnerships could look like to add benefits. Importantly though, we are always gonna be listening to our guests. That is how we actually struck up our conversation and partnership with Ulta Beauty as well as what we offer in our base program today with Apple. And so, we’ll be guest led, not Target led as we think about the types of partnerships that will add value to our guest lives. I do want to hit on specifically your question around Shipt. We do not leverage any data, of Shipt on their marketplace, internally at Target as we think about our assortment.
Christina Hennington: More specifically on how we build assortment and premium prices to answer some of your questions, our goal is to make sure that we are meeting our guests’ needs across a wide range of, shopping occasions. And so we look at — you heard us describe this especially when we talk about own brands. Right? We look for unmet needs space and white spaces to innovate against. Over the last year, we’ve spent a lot of time making sure that we have our value equation shored up. And the introduction of Dealworthy is a big deal for us. It is an opening price point brand across the entirety of the portfolio outside of food and beverage where we already have market pantry to just make sure we really have value options for all consumers so that they can meet their budgets.
On the flip side, we do really well with Ulta Beauty, which is premium beauty. And it it’s based on the insight that we have known for years in beauty. Almost all beauty shoppers shop both. They shop mass and they start shop premium. And for us to be able to service the guests and service all the trips in that category, we needed a solution for both, which allowed us to build this partnership with Ulta, which we’re really, really happy about. And we do that across the portfolio to say where’s the opportunity for Target to serve a unique need and where are the unmet needs in the category? And our guest has given us a lot of freedom to say, you know, “I’ll spend $600 on this item and by the way, I don’t wanna spend more than $2 on my body wash” and that’s fine.
Brian Cornell: Whatever works for them. I just finish up that discussion by saying, I think we’ve learned time and time again. We make really good decisions when we listen to the guests and listen to the broader consumer trends. Some of the things we rolled out recently, Starbucks for our drive-up guests. We didn’t come up with that. It was the guest saying, “boy, if Target could only provide me with my favorite Starbucks product, I’d enjoy this drive experience even more.” “If you could take my returns, I would really be pleased.” So, we respond to what the guest and the consumer tells us, and that’s gonna guide us for years to come. We’ve got time for one final question. So I guess we’re going right over here.
Christopher Horvers: Thanks. Christopher Horvers with J.P. Morgan. Nice to see you. Thank you for the presentation. So I have two questions. The first question is you think about the performance in the fourth quarter, how do you think about share? Do you think it’s more give back from the COVID bump? Do you think it’s the consumers just so focused on food and value and you’re just not getting the trip, so it’s not resonating to the power of the Target box? And how you think about recapturing that share going forward? And then my second question is for Michael. As you look at like just the seasonality of your business, it seemed to imply you’re implying a step down in operating margin in the first quarter relative to the fourth quarter. So was there anything unique either in the fourth quarter or the first quarter that making that the case? Thank you.
Brian Cornell: Michael, why don’t you start with the second half and I’ll wrap up with Chris’ first question.
Michael Fiddelke: Yes. So as we look at the first quarter, I think the key thing there is our cautious approach on the top line. And there’s some differences year-over-year in what we anniversary, but that’s a source of pressure in the first quarter. And as we get back to growth deeper in the year, we’ll see some of that pressure subside. So that’s the headline on that one, Chris.
Brian Cornell: And Chris, from a market share standpoint, I can assure everyone here, we look at market share in a very granular way every single week across our entire portfolio. And we’re going to be very focused on taking market share as we go forward. I’ll step back and not just look at the last year, but the last several years. And if I go all the way back to the pre-pandemic, we’ve added billions and billions of dollars of revenue growth. I think, Michael, over $30 billion. And we’ve deepened our relationship with guests along the way. We’ve added more capabilities and features. We’ve deepened partnerships, and those are going to guide us to be even a more relevant retailer and partner for consumers and guests for years to come.
So we are very focused right now over not just the next year, but the next 10 years to continue to drive even more traffic to our stores and visit store site, to make sure we are a company that’s driving top line growth because we know that’s the best way to reward our shareholders and we are absolutely going to be razor focused on taking market share as we go forward. And sitting here today, we know there’s significant opportunities across virtually every aspect of our portfolio, whether it’s the work that Jill’s leading in apparel and home or the work Rick’s doing from a food and beverage standpoint and a beauty and essential standpoint, whether it’s physical stores or digital, we see a pathway for continued market share growth, and we’ll look at that every single week and talk about it every quarter because we know that’s critically important to our roadmap for growth.
A – Brian Cornell: So, I appreciate everyone who joined us in person today. Those of you who have joined us, through the video and the conference. Thanks so much. We look forward to seeing you and hearing from you during our first quarter earnings report. So, thank you so much.
Operator: Thank you for joining us.
