Target Corp (TGT) — Q4 2023 Earnings Call Transcript

Good morning, and thanks for joining us. We're looking forward to providing our perspective on the results we shared this morning, and I can't wait for you to hear from several of our top leaders, including Christina Hennington, Rick Gomez, Jill Sando, Cara Sylvester and Michael Fiddelke. While Michael still has his hands firmly on the wheel as CFO, this is his first FCM in his new role as our Chief Operating Officer. I can tell you, we're looking forward to discussing Target's growth horizon and how it transcends volatility over any particular quarter or year. Our preference is always to think long term. It's why for years now, we've emphasized the durability of our business model. And many of you have validated that orientation in the conversations we've had with you over the years. So our session today will focus squarely on the long-term thinking that has driven top and bottom line growth over the last decade and positions us for continued profitable growth in the years ahead. You might be asking, why focus on decades? In part because that feels like a long enough time frame to be meaningful. But it's also because we look at longer horizons when evaluating growth potential for investments like new stores, supply chain and other assets. And it's good to ask what else would need to be true for those investments to succeed? So we'll analyze our 2023 performance in that context. We'll provide insights on how our '24 plans and guidance fit into that vision. And we'll spend time outlining our plan for sustained growth as well as our capacity to react to unforeseen realities. Both have been important over the last 10 years. By designing for steady growth before 2020, we were positioned to absorb exponential growth during a demand boom that none of us could have anticipated. Even now the country and the retail industry are in a prolonged, post-pandemic return to normal, which has been nearly as unpredictable as a pandemic itself from a consumer, social, political and economic perspective. By staying agile as a team and by continuously refining our approach and innovating, we've been able to navigate this time frame. In fact, if you think back to our earlier algorithms and long-range plans, we're well ahead of where we believe we'd be just a few short years ago. At the same time, we recognize this is a unique moment to clarify our road map for growth. Let me be really clear. Our goal is to recapture profitable sales, traffic and market share gains by expanding what makes Target different and better for our guests, amplifying our appeal to consumers beyond our existing guest base, and reinforcing the innovation and investment that drive durable and consistent results for our business and shareholders. So I might start today with the elements of the overall strategy that have been staples all along and will continue to be staples going forward. Starting with our stores. The most visible and tangible proof of our long-term planning and investment...

Thanks, Brian, and good morning, everyone. Continuing on what you've heard so far this morning, I want to emphasize two key themes. First, we build the foundation for long-term growth with a strategy that is both unique to Target and durable. And second, we're committed to building on that foundation for years to come. So this morning, I'll walk through the ways we're leaning into our core strengths, capabilities and differentiators we've built and refined over time to meet consumers where they are and drive long-term market share gains, sales growth and profitability. I want to start with an outlook on the consumer, which remains mixed. While there are some encouraging signs in the economy, there are also stubborn pressures impacting families and retails. Consumers say they still feel stretched; they're balancing a lot and having to make trade-offs to meet their needs of their families while sprinkling in the occasional luxury. And yet their affinity for style and newness plus early signs of disinflation contributed to a sequential uptick in discretionary category performance over the last two quarters, something we aim to build on and accelerate. At the same time, we expect consumers will remain highly value conscious, hunting for great promotions and seeking comprehensive value in their purchases. Consumers are also creating stability with small doses of everyday joy. After the volatility of the global pandemic, they're now coping with geopolitical tensions, social and political divisiveness and uncertainty around personal finances. This all demonstrates that our purpose to help all families discover the joy of everyday life remains incredibly relevant. And the assets and capabilities we've cultivated over time, like new and remodeled stores, investments in digital shopping, supply chain and loyalty, they've all increased consumers' view of us as an omnichannel powerhouse. Those enhanced strengths were built on long-established differentiators like design, curation, a well-balanced multi-category assortment and outstanding value. And those are just some of the elements we'll build upon and amplify through our strategy as we move through 2024 and beyond. Think about the opportunities around something like omnichannel discovery, designing experiences that support discovery has always been one of our strengths. Our stores are famous or perhaps infamous for inspiring guests to discover more than they expected. Millions of guests have experienced the joy of entering a Target store for a few items and end up leaving with extra treasures they didn't anticipate. This is a key aspect of how we set ourselves apart from our competitors and something we'll continue to build on, regardless of where or how the shopping trip begins. After all, shopping looks very different now than it did a few years ago. It's no longer a point-in-time transactional event. Consumers today are constantly taking in new information and seeking inspiration from influencers and trendsetters...

Good morning. I am Jill Sando and I lead the Apparel & Accessories, Home and Hardlines merchandising organization. I've been with Target for over 25 years. The majority of that time has been in merchandising, running different businesses across our discretionary portfolio. Also spent some time in planning and helped stand up our product design and development capabilities for our non-apparel businesses.

Hello. Good morning. I'm Rick Gomez, I lead Target's Food, Essentials and Beauty businesses. I've had the opportunity to lead a variety of different disciplines at Target, including marketing, digital strategy. And then before Target, I spent over 20 years working in the CPG industry developing, launching and managing various Food & Beverage brands.

Thanks, Christina, and hello, everyone. Today, I'm excited to talk about our guest experience. And you might ask Cara, how do we define guest experience at Target? Well, we think of it as the way we engage across America. From simply saying hello to consumers in a warm-Target way to deepening the relationships we have with existing Target guests, to how we create moments of discovery, connection and joy that invite people to choose Target again and again. But before we look back at the previous year and preview what's ahead, I want to ground us in a consumer point of view because to understand how Target designs its guest experience, we should start with how people are shopping today. As you heard from Christina gone are the days when people would follow a consistent and well-defined path from discovery to purchase. Today, shopping is nonlinear and simply a part of the general ecosystem of our lives...

Thanks, and good morning, everyone. As Cara just mentioned, I've recently taken on a new role. And while I'll be staying on as CFO for a little while longer, I'm honored and excited to be leading our incredible operations team as Chief Operating Officer. As an engineer by training, I've always had a passion and respect for the work of my new team. And I've learned a lot working with them and alongside them during my 20-plus years at Target. As John Hulbert would tell you, over the years, I've often added complexity to our investor travel. So we could squeeze in just one more store visit...

Simeon Gutman from Morgan Stanley. My first question is on the buying discipline. So Target makes a lot of its profit on discretionary products. Do you think you've developed new muscle over the last year or so? Or are you just reacting to the environment, and we'll see some of this go back?

I have 2 questions. One, seems like if we were to characterize the strategy today, it would be remodel the stores, introduce new products, leverage some of the relationships that you have with your customers through a reintroduced Circle program. You have a lot of experience with those strategies. Is it right for us to think that each one of those could contribute 100 basis points to your comp, and that's how you build to getting low to mid-single-digit comp over the long term? And then a more near-term question. You're guiding to a 3% to 5% comp decline for the first quarter, flat to up 2%. How do you go from point A to point B? And how have you factored in some of the uncertainties like changes in credit card fees and the overall uncertain environment, given that there's an election year in the year ahead?

It's Greg Melich with Evercore ISI. I have two questions. Michael, you mentioned that Roundel will see growth again. It was up 20% last year. For this year, are you expecting that to offset any pressure on credit, and how is credit performing? My other question relates to traffic; it's great to hear about the initiatives in the Target Circle. In the guidance, what are we considering for AUR and average ticket, since we are dealing with a value-focused consumer? We know there are a lot of products priced under $10. So within that 0 to 2 comp, how much would traffic increase by three while AUR decreases?

Michael, I'm happy to start. And we're not going to provide you the waterfall today that breaks all those components apart, but everything you've talked about is baked into our plans. We certainly expect new stores to be a major contributor as we go forward. Michael talked about, over a decade, we expect those 300 new stores to generate about $15 billion of incremental revenue. We'll continue to invest in remodels. And we've got a long track record of seeing those remodels deliver really good returns. We'll continue to lean into our own brands, our national brands and those great brand partnerships to make sure we're providing our guests with the newness and inspiration they're looking for. We're very excited, as you heard from Cara about the new Target Circle program, the benefits of that base program, Circle card and the excitement around Target 360 and how that will extend our same-day offering to guests, bringing it right to their home within an hour. So each one of those elements plays a key role. We're very excited about the enhancements we've made from an overall digital standpoint to provide more ease and inspiration and discovery for our guests...