Target Corp

NYSE:TGT

Earnings Call Transcript 2021-Q4

[John Hulbert, Vice President, Investor Relations]

Well, good morning, everyone. And welcome to Target’s 2022 Financial Community Meeting. I’d like to start by welcoming the investors and others who are attending this meeting remotely this morning. And for the first time in three years, it’s great to welcome everyone who’s here with us in person in New York. Before I turn it over to Brian, I have a couple of important disclosures. First, any forward-looking statements that we make this morning are subject to risks and uncertainties, the most important of which are described in our SEC filings. And second, in today’s remarks, we refer to non-GAAP financial measures, including adjusted earnings per share. Reconciliations of all non-GAAP measures to the most comparable -- directly comparable GAAP measures are included in our financial press releases and SEC filings, which are posted on our Investor Relations website. With that, I will turn it over to Brian to begin the meeting.

[Brian Cornell, Chairman and Chief Executive Officer]

Good morning. It’s great to be back here in New York for our first live event since the start of the pandemic. I can tell you, our entire team has been looking forward to seeing you in person. It’s been a long couple of years. But I also have to acknowledge the continued uncertainty that surrounds our world, which has only been magnified by the growing conflict between Russia and the citizens of Ukraine. It serves as another reminder of our continued need to support our teams, our guests, our communities as we all navigate these very challenging times. It’s been five years, since I stood in front of many of you, the head of then a $70 billion company. I was a little nervous, as I laid out a bold new company strategy. Today, I stand in front of you, as the head of $160 billion growth company, with a long list of proof points that our strategy is working. We have delivered 19 consecutive quarters of comp growth, 11 quarters comp growth before the pandemic, eight quarters of comp growth since the pandemic. We have grown because we have accelerated our investments, in our team and in our strategy. We would accelerate our growth, because our team stepped up in heroic ways, meeting the explosive demands that materialized with a pandemic. Five years ago, we had 1,800 stores. I announced the plan to add stores and upgrade the stores we had. And I saw jaws drop and our stock price dive for a while. At that time, retail was about closing stores, not opening them. Many of you questioned our approach. Now, five years later, we have almost 2,000 stores and we are still remodeling and building new stores. We also know the way we run our stores is the secret to growing digital sales. Yes, the way we run our stores is the secret to why digital is now 19% of sales. So as we look at the next five years, we are going to continue to build on our strengths. We have the culture, we have the connections and we care. We care about delighting our guests. We care about delivering value to our stakeholders. And as you see in our fourth quarter results, we are accelerating our investment in what’s next as we continue to deliver what’s now. For Q4, our comp sales were up nearly 9%. We achieve standout results relative to the market. We achieved growth on top of last year’s all time record growth. Our full year comp was up a remarkable 12.7%. In the last two years we have grown by more than 35%. That’s more than $27 billion. That figure alone would place the company in the top quarter of the Fortune 500. And we are seeing the benefits of stores as hubs. Growth was split nearly 50-50 between stores and digital dollars. Over this timeframe, we grew 2021 traffic by more than 12% on top of nearly 4% in 2020. And we posted 2021 after-tax return on invested capital of 33%. We achieved all this growth, while protecting consumers from dramatic cost of good inflation, delivering adjusted EPS that is 44% higher than last year and more than double where it was in 2019 and funding all of our ambitious strategic investments completely. Our Q4 results show, we are taking our strategy forward to the next level, with speed, with efficiency and with relevance with care. Over the next 75 minutes, we will show you how we are investing in opportunities for big wins. We have added Ulta Beauty to our stores. So far, our sales per square foot are strong. Guest engagement is impressive. We see the scale of opportunities has been even more impressive. We will show you how we translated a massive influx of insights from new guests and loyal guests who are engaging even more. You will see how we are accelerating our capabilities in personalization. Creating an always on inspiring guests experience and driving unparalleled value to our partners, with a fast growing revenue stream for our business through Roundel. We will show you how we are adding capacity, efficiency and innovation across stores and supply chain operations, driving the next phase of stores as hubs. We will show you how we are growing by increasing our multi-category assortment. We will show you how we are making incredible progress in a category like Food and Beverage. And above all, we will show you how we are growing by keeping investments and our team constant. We believe our constant investment creates that critical connection between social and environmental sustainability. ESG is a critical part of our Target Forward strategy. So, yes, we are going to keep growing in 2022. And knowing this, we have upgraded our long-term financial algorithm. Michael will lay that out later this morning. We are a bigger, stronger company now. We are growing on a bigger base than ever and we recognize the power of and. We have a slate of focused initiatives and they work together in unison. We have a connection to our guests and we have relevance to their lives. We have physical digital experiences and the only at Target touches. We have a multi-category portfolio and a differentiated approach to curating owned and national brands. We have scale in same-day services and the pathway for more digital growth, thanks to the synchronized operation of stores, fulfillment centers, floor centers, sortation centers and Shipt. We have the commitment for Target Forward and we can use our size and scale to benefit people and the planet. We will serve our guests through challenging times and will find terrific opportunities for growth. We definitely have the power of and. We know today’s consumers are facing a series of fall of hardship from the pandemic. We see higher prices across the country. We see supply chain constraints that are steadily working themselves out, but will likely take more time. Both of which are made more uncertain by the crisis in Ukraine. And we see people reevaluating how they think about work. Millions of people are searching for careers that have meaning and purpose. And they are turning to companies like Target for opportunities. As you will hear today, we are walking our stakeholders through these challenges. We have the global scale to keep the product people want and need moving through our pipeline. We have the value levers, multi-category assortment and multi-channel shopping experience, and we allow our guests to consolidate trips, get more done in one store and experience a little bit of a affordable luxury for their families, especially in this inflationary economy. Above all, we built a culture that cares. Our teams understand the way to grow and win together is to care. To care about each other, to care about our guests, to care about our communities, to care about the millions of families we touch each and every day. As I look at the future of Target, I increasingly see care separating us from the industry. So before we dive into corporate strategy and operational details, I want to tie some of these things together. I want to show you how our potential, our culture, our connection and caring tie into a business model that will deliver even more personalized, even more equitable, even more sustainable growth in the future. For a concrete example, look no further than the announcement we made yesterday, to invest up to $300 million to set a new starting wage and to expand access to healthcare benefits to more team members and their families. Two years ago, we raised our starting minimum wage to an industry leading $15 per hour. Now, we are setting new starting wage ranges of $15 per hour to $24 per hour, positioning Target as a wage leader in every market where we operate. We will also provide broader, faster access to healthcare for hourly team members, making nearly 20% of our team newly eligible for benefits and reducing the waiting period for all hourly store team members to enroll in Target medical plans. You can count on us to keep leading with investments like these. But to really appreciate where we are headed as a company, I want you know, not just what we are investing in, but whom. I am thinking of Jen Mayer, Store Director of T1235 in Hudson, Wisconsin. Jen started as an intern 26 years ago. Since then, she’s gone on to lead stores for Target in Iowa, Missouri, Indiana and Minnesota. In the two years since she moved to Hudson, store sales have increased by 30%. You will hear about chain wide fingers like that from John and Jen’s store is a proof point to that trend. Shortly after she started in Hudson, Jen oversaw the introduction of Drive Up right at the start of the pandemic and in two short years, her stores rocketed up to the top 75 for Drive Up. So the store performance is strong, but that’s not what caught my attention. Instead, it was a speech by one of Jen’s team members, a 27 year old named Lindsay, one of the thousands of team members who joined Target in the pandemic. In front of a black tie gala last fall, Lindsey related how she was devastated after losing her previous job during the COVID lockdowns of 2020. Here’s what she had to say.

[Unidentified Company Representative]

It is a privilege and honor to tell you how I became a Target team member. My target story is one of inclusion and acceptances. As we know, when the pandemic happened and businesses and people were affected everywhere, I sat home crying about being laid off from my job and needing a schedule, I wanted and needed to work. I’d like to shop at Target. So I thought that would be a good place to work. That’s when all of my own I have updated my resume and sent my application and I didn’t need my mom’s help this time. She wasn’t in my interview, either, like she was in the past. 45 minutes into the interview and telling them that I had to be honest, I have autism. They said thank you for sharing Welcome to Target.

[Brian Cornell, Chairman and Chief Executive Officer]

No one who knows Jen or her team would be the least bit surprised that they have hired Lindsay on the spot or that Lindsay has had a great developmental experience. In the store he is doing well and appreciates her extended Target family. Jen speaks for the company when she says, it’s important to give everyone opportunities. In her 20 years as a Store Director. She’s moved hundreds of team members from part-time to full-time. She’s developed and promoted dozens of team members to leadership positions. She’s helped them cope with trauma, overcome disparities, build skills and save for the future. She speaks boldly for our culture when she says, I asked myself, what would I want someone to do for me and then I tried to do that, times 10. This is the kind of question we ask ourselves to the company all the time. What can we do with our resources, with our strategy and plans with our team and culture to serve the world around us in a bigger or beneficial way? So as I hand off to our team, I will ask you to keep that story in mind. Jen Meyer will be the first to tell you we are just getting started, that you can’t equate accelerated returns with exhausted ones. Her store with those strong results hasn’t even been touched by a remodel. Starting in April, T1235 will get an Ulta Beauty and a Disney store. We will significantly increase the size of her grocery footprint and add a dedicated entrance for Drive Up and Order Pickup, given the volume of same-day services. And the growth from this remodel will spur Jen’s store even higher. It will combine with thousands of comparable examples countrywide to bring more joy, more equity and opportunity, and even more growth in both financial and societal terms to our stakeholders here and around the world. Christina?

[Christina Hennington, Executive Vice President, Chief Growth Officer]

Thanks, Brian. This morning, I am eager to give you a peek behind the curtain to answer the question, what’s next for Target and the short answer is a lot. I’d like to share with you a deeper look into the growth framework we use to drive our strategies forward. With a fortified foundation and the deepening level of trust we have established with our guests. We are continuing to build what’s working strategically, while making smart choices to launch new initiatives. While I plan to spend most of my time today sharing our specific strategies and the lens through which we view them, let’s first acknowledge what enables the execution of these strategies in the first place, our team, our operations and technology. The investments we have made in these areas will empower everything we will share today. In fact, they are increasingly becoming differentiated growth drivers in their own rights and they propel our purpose, to help all families discover the joy of everyday life. And at the center of that purpose, you see our guests, everything we do should be rooted in a deep understanding of what our guests want along with empathy to understand what they need. Our culture to care, grow and win together, coupled with our core values of inclusivity, connection and drive, support our purpose. Without them, our purpose statement is just words on the page. It’s only when we are aligned on who we are, what we care about and how we drive forward together that our purpose comes to life. Here’s a recent example. One of our guests, Nicholas, recently lost his sister to cancer. One of his family’s most prized possessions was a photo of a sister in an opal-housed picture frame that she gave to him before he passed. One day, the frame fell and shattered. Unable to find a replacement, Nicholas reached out to us with a plea for help. The frame, unfortunately, was no longer in production. But the owned brand team tracked down two remaining frames, which they sent to Nicolas and his wife, complete with handwritten notes of sympathy and care from the Target team. Nicolas shared with the team, I know it’s just a frame, but there’s a lot of meaning behind it. What you did may seem small, but it represents so much more. This is just one example of how our team continuously shows up living out our values and putting care first. I am so grateful for their unwavering commitment to our guests, the communities they serve and each other, all in service of our purpose. So now let’s go deeper into each of our six strategic pillars, distinct but interwoven aspects of how we intend to grow. They represent core ideas to create forward motion for our business and help define the sum of the parts that is uniquely target. Let’s begin with one of the most iconic differentiators at Target, our brands. Through our careful balance of exclusive owned brands and industry-leading national brands, Target differentiates by curating a unique assortment, driving preference in a crowded retail landscape. We built guest affinity through our flagship brands like Good & Gather, All in Motion, Cat & Jack and Threshold. We have also continued to innovate with new brands such as Brightroom, Target’s first dedicated storage and home organization owned brand. And Kindful, our first pet food brand with premium ingredients and no artificial colors, flavors or preservatives. Through our world-class design and sourcing functions, we are able to develop and produce product at incredible quality and value, always a focus for our guests, but never more so than in an inflationary environment. To illustrate the scale of our owned brands, in 2021 alone, Target sold more than 330 million units in Cat & Jack, equating to nearly seven items for every child in the United States under the age of 11. And even though these brands are already big, they are still growing. In fact, Target’s owned brands grew 18% in 2021 and at more than $30 billion, our owned brand sales alone now rival the size of some Fortune 100 companies. But as we have said before, it isn’t about owned or national brands. The harmony created between them is part of what makes Target unique. Our recent progress in denim serves as a perfect example. Years ago, we recognized a vast opportunity to elevate denim’s role at Target, stemming from considerable guests and market research. So when Universal Thread and Goodfellow launched, both featured extensive new denim offerings, including a variety of styles and inclusive sizing, all at sharp price points. The guest reaction was to the quality and value was fantastic. We further rounded out the assortment by deepening our partnership with Levi’s, which continues to grow. All told, the interplay between our owned and national brands has reinvigorated this category, bringing us from a retailer that sold denim to a denim destination, having grown sales in this category by more than $150 million since 2019. And Levi’s isn’t the only growing partnership at Target. We are also deepening our relationship with leading national brand partners like Disney, Apple and Ulta Beauty. Brian touched on the strong results we are seeing with our first 100 Ulta Beauty at Target stores. We entered this partnership knowing our guests were looking for prestige beauty brands and industry-leading expertise and that’s exactly what these new shops are delivering. In stores where we have added an Ulta Beauty experience, guests are buying incremental items from the Ulta Beauty assortment, while continuing to shop the beauty brands they loved at Target for years. In fact, these new spaces average more than 2 times the productivity of the rest of the store and the growth is proving to be incremental. Specifically, in stores that have added an Ulta Beauty section, we are seeing a mid-teens lift across Total Beauty and productivity lifts in complementary categories as well. With these incredible results, we remain committed to operating at least 800 Ulta Beauty at Target locations over time with plans to add more than 250 new locations in 2022. At Target, we pride ourselves on the level of service and shopping experience we provide. As John and Mark will share in more detail, we made meaningful investments in progress in the store shopping experience over the past several years. So I will focus on our opportunity to grow our in-store services. Target has long been a destination and escape largely because of the differentiated experience we provide. In-store services are one more way we can make life easier for our guests, helping them to accomplish more in a single trip to their local store. Years ago, we began our partnership with CVS Health to provide pharmacy services in our stores, and they continue to deliver exceptional care and expertise today. This not only benefits our guests who fulfill their prescriptions in our stores, but also consolidates another trip, simplifying their lives. Similarly, we provide convenient, well-established optical services, which we have at more than 500 of our stores and growing. Yet, we still have an opportunity to do more. Let me share an example of a recent pilot we plan to scale. In 2021, Target began testing ear piercing at several Minneapolis-based stores. Our research found that guests were looking for a reliable, safe and convenient place to get their families’ ears pierced. So we created a joyful and differentiated experience, making us the first and only national retailer to offer ear piercings performed by a licensed nurse. This service helps us connect and celebrate a major milestone with often younger guests, creating lasting affinity for our brand. Given the success of the pilot, we recently expanded the rollout to nearly 200 stores, with plans to meaningfully increase that number by the end of 2022. This is a fantastic example of what happens when we listen to our guests, deeply research the market opportunities and create a differentiated solution. Another growth pillar is our focus on affordability, as value remains among the biggest loyalty builders in retail. Our goal is to deliver unbeatable value by providing affordability across every category every day. After all, we established our Expect More. Pay Less promise decades ago, and we are continuously evolving what it means to deliver great value. Given that the U.S. economy is experiencing the highest inflation rate in decades, the American consumer is becoming increasingly price conscious. This is why we believe our comprehensive view of affordability, which focuses on price, but encompasses so much more, sets Target apart from our competitors, driving deep engagement and growing loyalty. Our guests tell us that affordability begins with price, but also includes proximity, accessibility and assortment choices that satisfy any budget. It also means receiving valuable benefits like those we offer through Target Circle, including exclusive promotions and deals, 1% earnings to redeem on future purchases and the ability to help direct Target’s charitable-giving to the causes our guests care most about. And the industry-leading benefits we offer with our RedCard holders, including 5% of every transaction, free shipping on Target.com and no annual membership fees. Over the years, RedCard guests have saved more than $9 billion on their purchases, including more than $1 billion in 2021 alone. Now I’d like to share a more -- share a bit more about two emerging growth pillars in our framework. While they represent more nascent opportunities, they are positioned to spur incremental growth on top of our existing strategies. The first is our focus on relevance, something we have long worked to maintain and grow with every guest interaction. Brian shared the compelling opportunity we have to better harness and apply the power of guest insights. Through this opportunity, we can optimize our assortment, more effectively make offers to our guests, and most importantly, personalize our interactions with them. We have long known the joint value we can create for our vendors, our guests and Target by connecting guests to the products they want and need. But as we continue to deepen our relationship with the guests, our ability to refine and elevate this value is extraordinary and will continue to drive outsized growth over the next several years through the likes of Target Circle, Roundel and Target Plus. Carol will provide more detail on these rapidly growing platforms in a moment. Finally, I want to highlight Target Forward, the newest chapter in a long history of strong corporate responsibility at our company. At a time when the American consumer is becoming increasingly focused on not just what they buy, but also where and how the product was made, how its production impacts the world and those who produced it, and how companies function as citizens of a global community, we are proud of our bold commitments to better people in the planet with every choice we make. As we grow and continue to develop our new owned brands, our Target Forward commitment is to design and elevate circular sustainable brands. Of course, these brands will begin with a focus on our guestsm, but also consider the impact to the world. We aspire for 100% of our owned brand products to be designed for a circular future by 2040. Additionally, our teams will continue designing to eliminate waste, using materials that are regenerative, recycled or sourced sustainably to create products that are more durable, easily repaired or recyclable as well. Beyond our sustainability efforts, our aspirations to accelerate opportunity equity are equally pivotal. While we still have far to go, Target’s Reach Committee is encouraged to be leading the industry with progress against virtually every goal we have set forth. We will continue to share specific progress over time, but I want to highlight a few examples with you today. The first is in our Beauty business, where we have increased our Black-owned or founded brands by 65% since 2020 and are now leading the industry with more than 70 Black-owned and founded brands. Some of these entrepreneurs launched through Target’s Accelerator programs designed to quickly scale brands at Target. Entrepreneur Cora Miller of the Black-owned Hair Care business, Young King Hair Care, went through our 2020 Target Takeout program and subsequently launched in 365 Target stores. Given the immediate success and reaction from our guests, we now have plans to expand this line into significantly more stores in 2022. Cora is among a group of fewer than 100 black female entrepreneurs to raise more than $1 million in venture funds. However, we want Cora’s story to become the rule, not the exception. We will continue to elevate entrepreneurs like her through Accelerator programs, including the recently launched Forward Founders Program, which equips historically under resource centers to build their businesses and gain access to industry-leading retail resources and partnerships. When more than half of our first cohort comprised of Black entrepreneurs, we aim to provide a launching point for many new and emerging Black-owned businesses. If we have proven anything over the last few years, it’s that Target’s a growth company. Even though we are now more than $100 billion business, the opportunities for growth are immense. We have created momentum through unique and innovative strategies, many of which began long before the onset of the pandemic and because of our durable, flexible business model, we have proven we can adapt to any environment. We will continue to play offense and accelerate these strategies, while listening to the ever-changing wants and needs of our guests to ensure our playbook is a direct reflection of what they have come to expect from Target. With that, I will turn it over to Cara, who will provide more color on some of our powerful growth strategies.

[Cara Sylvester]

Hello, everyone. I am excited to be here to share a view of Target’s growth through our guest sizes, because as Christina shared, everything we do should be rooted in a deep understanding of what our guests want, along with the empathy to understand what they need and how those needs continue to evolve. In the next few minutes, I want to show you how our commitment to relevance has positioned Target to deliver the most personalized omnichannel experience in retail. In my first year as Chief Marketing and Digital Officer, I have had the privilege of sharing Target’s story in many virtual firesides, roundtables and interviews. And the common thread, when I think about all of those times, is that people always ask me how Target stays three steps ahead with our guests in these rapidly changing times. And while I am not a huge fan of giving away all the keys to success, I always point to our culture of care and our core value of inclusivity that have us listening and learning from our guests deeply and continuously. When our insights team talks with guests, we don’t just ask them questions about Target and their experiences shopping with us. Guests share their hopes with us, their fears and their dreams. They share simply what’s going on in their lives. Through this ongoing check-ins, every area of our enterprise has a view of the holistic human experience lived by our guests during the pandemic and what that might mean for Target in the future. We also know from brand research what matters most to guests when they shop and connect with us. Ease and affordability are essential, but our guests are looking for more, too, quality and value, community and connection, inclusivity and feeling seen, what Brian calls the power of and, and what gets me really excited is how we are delivering loud and proud on these personal guest values at scale. Target’s digital experience, which we have been investing in for years, plays a key role here as a gateway to our guests and a huge growth driver for us. Our digital business has nearly tripled in the last two years and in 2021 delivered a 20% comp on top of a 145% comp the year prior. Then there’s 45% comp growth in digitally enabled same-day services on top of 235% last year. And our flagship Target app has moved from 30% of digital demand a little over two years ago to closing in on 70% today. But the biggest differentiator when you look at Target’s digital experience, it is designed with guests at the center. We take the friction out so that guests can experience Target on their own terms, which means we are guest obsessing at every touch point to stay a step ahead of evolving guest behaviors. For example, we are leaning into the love our guests have for our digitally led same-day services because that’s sticking. Routines developed early in the pandemic are now part of their lives, things they cannot live without, but they look a little bit different today. So here’s a guest who had a drive a border, our highest NPS service, but then she was drawn inside to discover something new. Then there’s this guest who said, can we just talk about the fact that you can go through Target with Starbucks at hand and then go through Ulta? These new kinds of target runs and stock-ups reflect our guests’ evolving needs and wants and a seamless omnichannel experience that delivers on them. Today, Target has 40 million guests in counting shopping across channels. And as you have heard us share before, omnichannel guests spend 4 times as much as stores-only guests and even more compared to digital-only guests. Target can bring together insights across an omnichannel journey, from RedCard and registry, to digital and in-store, to our call centers and every step in between, which means we are getting a 360-degree view of the kind of guests that are driving so much growth. With these meaningful insights, we can make sure that Target magic they love is even more relevant in their lives and the experience even more personalized. So you can imagine what this looks like. For one guest scrolling through the app, what she sees is curated especially for her. There’s her favorite items and great deals on her go to essentials for weeknight dinners and because she told us she’s a teacher, it really means something to her when she sees a Target Circle offer that makes her classroom supplies more affordable. Just getting ideas for what to pack in lunchboxes for her kids this week, too, maybe a little something from Good & Gather, and what’s more, her app experience helps make life easier as someone who might need a shopping partner once in a while. That’s our name for a new service that allows her husband to do the Target run while she’s working, a service that is near and dear to my family’s heart. So she checks out and later that afternoon, he picks up what’s for dinner. Here’s another kind of personalized guest journey that we are obsessing over. A guest is shopping for essentials when he sees a message from a banner ad about Clorox’ Glad bags. He’s purchased them before, but other brands too. The headline benefits really resonate with him. So this time, he adds Glad to his cart, he checks out and drives up. Purchases like this one contributed to a 40% higher return on ad spend for Clorox and a 25% increase in customer retention over the duration of the campaign. Let me share the back story on this type of Target run. At the start of the pandemic, Clorox saw growth in guests buying their products for the first time and they wanted to retain them. So they turn to our media company, Roundel, to measure guest values and behaviors. Using that research, Roundel developed a series of A/B tests and Clorox used those key insights to optimize messaging and audience targeting. How we are leveraging media to know our guests better and create a more relevant and personalized experience for them is incredibly exciting and so is this. From its humble beginnings in 2007 with just 5 team members and known as online vendor marketing, Roundel is now a 500-plus person strong fully integrated Target team, already delivering more than $1 billion in value for Target and we expect that to grow to $2 billion over the next several years. To sum up Roundel, it’s positioned for continued success because it’s delivering on relevance and value. That’s a win-win-win for Target, for our partners and for our guests. Now I’d say the same thing about Target Plus. Target Plus is different than other marketplaces. It’s invite-only with vetted partners we have relationships with who are extending our aisles digitally. And because of our trusted and curated assortment, our guests aren’t sifting through thousands of pages of results for the one thing that’s going to bring them joy. In fact, Target Plus is so seamless on the things that matter the ease of the experience, a relevant assortment and the benefits of RedCard and in-store returns, the majority of guests don’t know they are shopping with marketplace. It feels like Target. It feels personal. And the love for marketplace is only growing. In 2021, Target Plus grew 75%. So let’s take a look through our guests’ eyes. In Target stores, our assortment of sunglasses features a curated set of options designed to meet the wants and needs of a broad set of families. For this guest, though, who’s purchased Goodfellow shades to keep at home, at work, in his car, he’s thinking about splurging for his upcoming vacation. The Ray-Ban Aviator he’s looking for our online, and he’s over the moon about the RedCard savings, as he makes the purchase from our partner, Luxottica. And when he decides on a pair -- different pair that will frame his face even better, it’s easy enough to stop by the store and let us handle the returns. With rich insights from omnichannel experiences, we are able to serve up even more deals that guests want, more suggestions of services they have never thought of, more ways to support brands and non-profits close to their hearts, and that brings me to Target Circle, which I am really excited to talk about. So here’s a lesser engaged guests who joined Circle through our partnership with Ulta Beauty. She’s able to seamlessly link her Ultimate Rewards account with Circle for all of the benefits. She’s thrilled that she can now find her favorite skincare brand and her go-to-mascara at her local Target store and I want to pause here for just a second. Christina told us about how we are off to a great start with the Ulta Beauty shop-in-shops. But let’s recognize how that partnership is translating to digital and loyalty with our guests. We are getting to know these guests in Circle, leading to more personalized experiences that are serving up the things they crave, and back to this guest, other things she may love like Wild Fable. So in such a short time, someone who only shop occasionally is now on the path to super fandom. Circle is a way for us to deeply understand our guests and have a two-way connection with them. And in addition to the fact that in less than three years, it’s become one of the biggest retail loyalty programs in the United States with 100 million members and growing. It’s also one of the new ways we are creating relevance at scale with a strategic shift from mass promotional offers to personalized. During holiday, personalized offers showed an $8 to $10 lift in promotional basket size compared to mass offers and a conversion rate of 70% versus 40%. In addition to the personalized deals curated for them and the fact that they can vote and support local nonprofits important to them, I have to call out our guests’ love for Target Circle Bonus. Our new gamification platform personalizes missions and rewards members and it’s already delivering big for our business, resulting in nearly $200 million in incremental sales in 2021. And as you are hearing repeatedly today, we are just getting started. So I have shared lots of examples about how we are meeting our guest needs and wants throughout their omnichannel journey, but this one stands out as a point of pride. In the past, we have been a Black History Month campaign for the month of February, but now through our digital platforms, we have grown towards an always on, deeply relevant approach. So Target guests can shop and support Black-owned founders and entrepreneurs all year round through Black Beyond Measure and Latino-owned brands and women-owned brands and Asian-owned brands and so many more personalized and inclusive experiences where guests feel seen and heard every day. Here’s one more. Let’s take a look at a new spot from our brand campaign, What We Value Most Shouldn’t Cost More. [Video Presentation] There’s a lot of good to see here. But it’s not just what the guest sees. It’s also about what’s happening behind the scenes that makes all guests feel seen. We are partnering with diverse content creators in new ways from production crews to on-site catering in front of and behind the camera. Every part of the marketing ecosystem reflects our forward values. And this is so important, we are walking the walk in terms of our investments. By the end of the year, we are committing 5% of our annual media spend to Black-owned media partners and another 5% to Hispanic-owned media partners. Because equity opportunity and inclusivity are core to who we are, they show up authentically in our omnichannel experience and our guests are responding to that. This guest feels seen. In stationery, she feels a sense of belonging and inclusion when she holds a heartfelt message in Braille and we brought him joy. Let’s close with his journey. [Video Presentation] So no matter where you look in our omnichannel experience up at the Cat & Jack sign in store or online, the relevant connections we have with our guests are making a positive difference in their lives within our communities and for our business and we are never going to stop. Now, I am delighted to introduce my friend and team member, John Mulligan.

[John Mulligan, Executive Vice President and COO]

Well, good morning, everybody. So I am often asked how Target continues to operate within a challenging and volatile environment, putting growth on top of growth and building trust with our guests quarter-after-quarter. I could point to our agile supply chain, our hundreds of omnichannel stores, our industry-leading fulfillment capabilities and the operational algorithms that make it all work. But the real key to our continued growth is our global team and all the way they are using our resources and operations to take care of our guests. In just the last two years, they have picked and packed 4 times more items for same-day fulfillment, supported double-digit store traffic gains with a safe inspiring environment, opened over 60 new stores, remodeled hundreds more and moved record levels of inventory to support our growing needs of our guests. Brian touched on how our Target team is showing up for each other and how that spirit of care starts here with our team and then extends to our guests and our communities. Our team is the connection across our business and the pulse of our operation, and I want to acknowledge their impact on how Target shows up today and how we will continue to deliver in the future. The power of our team is always visible in our stores, nearly 2,000 of them in neighborhoods across the country, serving as inspiring shopping destinations and local fulfillment hubs. Although, the idea of leveraging stores to fulfill online orders is widely embraced across retail today, we are on our own when we introduced the concept five years ago. As a result, we are years ahead of others who just started using physical stores to meet digital demand. We know using stores as hubs would give guests more choice and convenience, while giving our operation more flexibility and capacity for future growth. That was true prior to 2020 and could have not have been more essential since that time. Today, when our guests turn to Target, no matter how they choose to stop, those stores answer the call. Located just miles from most American homes, our stores handled more than 95% of the $100 billion plus in sales we did in 2021, including 12% more in-store traffic and most of our digital demand. Notably, more than half of those online sales were filled through our same-day services, Drive Up, Order Pickup and same-day delivery, which is Shipt. Our Chief Stores Officer, Mark Schindele, will share more shortly about how we will keep investing in those services. They not only offer the quickest fulfillment at the lowest cost, their trip drivers that actually deepen guest engagement with Target. And on top of it all, they are the fastest growing part of our business. This past year, they grew 45%, building on 235% growth in 2020, showing the continued guest appetite for fast and easy shopping. With digital fulfillment growing exponentially and in-store traffic continuing to rise, our stores are supporting more and more volume. In the last five years, the average store has added $15 million in sales, which means $40 million stores have become $55 million to $60 million stores and growing. And as our stores become more productive, they naturally gain efficiencies, including significant cost leverage and lower clearance markdown rates. So as they contribute more to our topline, they further protect the bottom line. We have said from the beginning that our stores have the capacity to support higher growth. That remains true today, even as average sales per store have risen 30% in just the last two years. But that enormous growth also means our operation is years ahead of where we had planned. So we are continuing to build upstream capacity we will need over time. As we do, we are investing in ways that enable growth and move us toward our Target Forward sustainability commitments, from how we build and run our stores, to the standards we hold for our vendor partners, as well as how we will keep taking care of our team. We are continually strengthening an operation that supports a long future for Target and the world around us. Our investments in capacity start upstream and how we innovate within our supply chain to deliver on the growing need for inventory in our stores. Before last year, we hadn’t added a new regional distribution center in over a decade, even as our total sales grew 40% over that same time period. Rather than add buildings, we grew by investing in automation, robotics and process design to improve the efficiency of our existing sites. Of course, we will always keep investing to make our buildings more efficient. But with an additional $27 billion in sales over the last two years, we can’t rely on that alone. It’s time to expand our network. Last summer, we opened two new distribution facilities, one in New Jersey and one in Chicago. Today, we have four more currently in development that will open over the next few years with plans for several more to follow. Lighting up new buildings adds tremendous capacity to our supply chain network in support of our stores and will position Target to handle many more years of growth. As we continue investing upstream from our stores, we are also innovating downstream with sortation centers to accelerate our last-mile capabilities. These centers help us further scale our stores as hub strategy and create room for future growth. The first of these facilities located not far from our headquarters in Minneapolis has been up and running for just over a year. Before it opened, our store teams would fulfill online orders and palletize the packages in the backroom, waiting for one daily pickup from our carrier partners. Now Target trucks collect those packages at our 40-plus Twin City stores throughout the day, keeping orders moving while giving stores more room to fill even more. The packages arrive at the sortation center, where they are organized by zip code and allocated to partners for direct delivery. Last spring, we integrated Shipt’s last-mile delivery capabilities into the operation. Shipt drivers pick up a batch of orders sorted by neighborhood to make fast and efficient deliveries to our guests. Even during peak season, when most orders had a standard two-day promise, these packages were delivered in just over a day on average. At the same time, the average unit fulfillment cost dropped by nearly a third and that’s before we have added automation that will make these buildings more productive in the future. Our Minneapolis pilot shows how sortation centers will make stores even more efficient as fulfillment hubs and allow us to roll out a next-day delivery capability at scale. We started to expand this concept into other densely populated markets. By the end of next month, we will have five more centers up and running from Dallas to Philadelphia, with another five planned in additional metro areas later this year. This capability isn’t something we built overnight. It’s the result of many strategic decisions we have made over time, working together in a model that’s unique to Target. It works hand in glove with our stores as hub strategy. It leans on technology we acquired and further developed through Grand Junction and Deliv to optimize the most efficient route for every package. And it’s unlocked by integrating Shipt’s delivery capability into our last-mile operation. Our sortation center expansion will add meaningful speed and efficiency to our fulfillment capabilities, so we can field continued growth for the long-term. [Video Presentation] The ongoing investments in our supply chain are designed to keep our stores at the center of how we serve our guests. Just as important are the continued investments we make in the physical stores themselves. Since 2017, we have completed top to bottom remodels across nearly half our chain, bringing even more inspiration to the store environment, while helping our team more effectively support online fulfillment. This year we will remodel around 200 stores and keep that pace in the years that follow. And these aren’t the same remodels we are rolling out when we started. Each year, our architects and construction crews update our plans to keep raising the bar on retail design. And our guests continue to tell us they like what they see. Following a remodel, traffic gains across the store helped drive an average 2% to 4% sales lift in year one and another 1% to 2% lift in year two. As our full store program continues, we will also invest in hundreds of smaller projects to support growing in-store partnerships, including Ulta Beauty, Disney and Starbucks, and they make store fulfillment even easier for our team. As we invest in existing -- in our existing store portfolio, we will continue to open around 30 new stores a year. For the better part of the last decade, our store growth has been driven by small formats. With a more flexible footprint, these stores have enabled us to enter new markets and reach more guests. This year, we will keep going, opening doors in iconic sites, from the historic streets of Charleston, South Carolina to the Buzz Energy of Times Square. At the same time, small isn’t always got planned. But our store is now more productive than ever, there are benefits to a bigger box and given the favorable real estate market, these sites are available at attractive deals. I am not talking about our largest store formats, though they continue to do extremely well for us. I am talking about midsized stores, 2 times to 3 times bigger than our small formats. These sites are built in dense neighborhoods, with enough room for a traditional store experience and digital fulfillment, helping us bring Target closer to even more guests. This versatility is another example of how we built a flexible operation to support our growth. 10 en years ago, we designed and built two store formats, large and larger. Today, we have the opportunity to open and operate stores in spaces of any size, so we can meet our guests wherever they are. This year, we will open stores ranging from 14,000 square feet to 10 times that size, using that flexibility to design shopping experiences that best meet the needs of each local community. And before I hand it over to Mark, I will close with how I started with our team. You heard it from Brian and Jen, our store director in Wisconsin, we are still in the early days of our growth strategy and it’s our team continuing to accelerate capabilities and build trust with our guests that will keep Target growing well into the future. As we have invested in their growth, from wages and benefits that you heard about today, to education, skill training and career progression, internal surveys show our team’s engagement, morale and confidence in Target’s future remain strong. That stability has led to better guest service, more collaboration, and as Brian said, a finer ability to flex, adapt and navigate the new challenges of being a bigger, stronger Target. When we take care of our team, they take care of our guests, proof that Target’s culture will power our strategy to deliver ease, inspiration and joy for our guests for years to come. Take a look. [Video Presentation]

[Mark Schindele, Executive Vice President and CSO]

Good morning, everyone. One of the best parts about my job is getting to spend time with our team every week in stores across the country. And I hear stories like those we just shared in the video, stories about what Target means to our team. And there’s no doubt that our more than 300,000 store team members who interact with our guests every day are Target’s biggest asset and our single greatest differentiator. They inspire me as they bring our purpose to life every single day. And I am excited to talk about them and what they do, including ways that may not show up on the balance sheet. Take Terence, for example. He’s a team member in our Fairview Heights, Illinois store who stopped what he was doing to help change a guest’s flat tire in our parking lot. Her response, he’s my hero. I will be looking for him every time I go in that store just to tell him how special he is. Or Manu, a leader in our Maui store, who helped the elderly community in the remote town of Hana. She partnered with a local non-profit to help them get the essentials they needed when they couldn’t make it to the store in person. Our team is there to help our guests every day, handing them clean cards as they walk in our front doors, helping them find that perfect item on the shelf, dropping their bags into their car or shipping orders out the back to their homes. They show up for local communities and each other day in and day out, and that’s why when we set out to put our stores at the heart of everything we do, it was clear that the most important investment we could make was in our team. We know an engaged team is more productive and creates a better experience for our guests. And over the last year, we have invested in wages, debt free education and made even more of our team eligible for health benefits. We have also focused on desired hours and more reliable schedules through one-on-one conversations with our team, and we have an ongoing commitment to develop our team to get to wherever they want to go. We have also seen great growth in our new on-demand scheduling option we introduced this year, with more than 35,000 team members already signed up. It’s a perfect opportunity for those team members who mainly want a couple of shifts a month or a college student who wants to work over the holiday season when she’s back over winter break. Together, our investments and consistent hours for our team and the flexibility of on-demand models help us deliver for our guests, while supporting the diverse needs of our team. Even as the U.S. labor market is seeing some of the highest turnover on record, our rate in Target stores remains below pre-pandemic levels. Our stores are fully staffed and we have been able to leverage the training and the tenure of our team to easily shift against demand without missing a beat. Let’s talk about the experience we are delivering for our guests. Target is the easiest place for our guests to get everything they need, no matter how they choose to shop. Even in a year as unpredictable as 2021, we saw satisfaction rise with gains in many of our most important drivers of guest experience, like interacting with our team on the sales floor and wait time at checkout. In fact, over the past two years, our already impressive overall Net Promoter Score increased more than 10%, a true testament to our team’s commitment to service. In every store from the register of the Drive Up plan, our team is building loyalty with guests, offering ease, convenience and incredible service that keeps them coming back. For example, more than 60% of our new Drive Up guests return to use it again that month and when a guest tries a new same-day service for the first time, they spend more target going forward, including in our stores. And last year, more than half of our digital sales came from our same-day services. In the year ahead, we will fuel that momentum, deepening our trust with our guests with an experience our competitors can’t match. That means clean, bright and owned brand floors that invite discovery, inspire guests with the latest products, all brought to life by an incredible team, a team that’s empowered and trained across the building so they can jump in wherever our guests need us. And we have developed a flexible framework of service, so every single team member can engage and connect and problem-solve with guests across the store. We will continue to backup train every new team member on same-day services, so we can easily adjust for peaks and in-store pickup and we are offering continuous learning and development moments throughout the year in key categories and new brands. We know operational excellence and service go hand in hand so we are focused on nailing the fundamentals and making shopping at Target easy and special for our guests. Take a look. [Video Presentation] In nearly 2,000 communities across the country, our Target team provides great in-store experience and easy fulfillment options. With same-day services already at scale from coast-to-coast, we are ready for when guest shopping behavior changed. And as we have seen demand grow, our team is able to support that growth and accelerate our progress to meet guest needs along the way. In the past year, we have added adult beverage and expanded our assortment for pickup. We built in more personalized features like sending a friend or a family member when plans change, choosing where you would like your order placed in your car or selecting a backup option of some things out of stock. We even doubled the amount of Drive Up parking spaces in the holiday season so guests could get those last minute gifts without leaving their cars. Our guests love our same-day services and they provide great cost savings of nearly 90% per unit compared to shipping from an upstream warehouse. In the year ahead, we will keep improving Order Pickup and Drive Up offerings with a focus on quality, speed and great service. We will continue to expand the assortment available and we will add the backup item functionality to even more categories. In the months since we rolled out this option, our teams are able to substitute the backup items 98% of the time. Everything we do at Target is grounded in making our guests’ daily lives even easier. We want every Target run to be fast, convenient and rewarding, and that includes the return process. Our teams are building the capability to accept returns from the Drive Up lane with plans to test later this year. So guests will be able to check everything out their shopping list and return a product that wasn’t quite right at the same time and without leaving the car. And lastly, I am really excited we are going to pilot the ability to order Starbucks for Drive Up, so guests can get everything on their list and request their morning late when they are on the way while never even unbuckling their seatbelt. We will take a test and learn approach in select markets throughout the summer and fall with a goal of eventually making this option available from coast-to-coast. To bring these enhancements to life and continue strengthening our operations, our team is working to streamline on the back end, even further integrating the omnichannel experience into how we run and staff our stores. Now, of course, nothing at Target happens in a vacuum. So we are working with partners from across the organization from tech and digital to supply chain and properties to support these capabilities. The ability of our store teams to ship local orders out our back doors continues to increase our speed to guests, while delivering cost savings of more than 40% per unit versus upstream shipping. We are working closely with our supply chain partners, as we roll out more sortation centers across the country. As you heard from John, we are excited about the efficiencies they will continue adding to our ship-from-store operation. Frequent sweeps of our stores to a local sortation center frees up space in our backrooms and centralizing the sorting process helps our team be more productive and saves valuable time. Our teams are focused on greater ease and efficiency with store staffing, especially when it comes to same-day options, so we can be ready to flex with guest demand. We are enhancing our technology to give store leaders an even clear real-time picture of fulfillment needs and testing out new tools to help them better predict guest patterns in the future, helping us be even more efficient in staffing, the right teams at the right times, ready to do the work and deliver for our guests. We are making upgrades to physical spaces that support these services, remodeling our stores with more hold capacity, adding dedicated doors with easy access to the exterior. We are adding more Drive Up spaces to our parking lots and we are even adding some counties and stores that get bad weather. Also our teams can get orders to guests quickly and safely every time. And inside our stores, we are making improvements to the process itself to make things even easier for our team and better for our guests, like finding the most efficient ways to pick orders from how we deploy the team members, to technology that helps reduce footsteps throughout the store. All with the goal of continuing to deliver the ease and convenience our guests expect. Our solid operational foundation and stores as hub model has allowed Target to be there for our guests even when the world shifted around us and they will continue to be the engines of our growth. That foundation is made even stronger by the deep roots of empathy and care and everything our teams do to keep us moving forward together. And before I turn it over to Rick, I can’t miss the opportunity to say thank you to our team. With stores at the center of how we serve guests across the country, they have risen to every challenge with care, resilience and flexibility, not only meeting guest needs today, but ensuring we will be ready for them tomorrow. Thank you.

[Rick Gomez]

Thank you, Mark. I am proud to be here today representing Target’s Food and Beverage team, because getting to $20 billion in sales last year, delivering double-digit growth on top of 2020’s double-digit growth, achieving millions of dollars in market share gains and becoming America’s fourth biggest digital grocer and being named Retailer of the Year by Supermarket News, well, none of that happened by chance. As some of you know, we have been on a journey when it comes to groceries at Target. Food has always played an important role in driving trips and basket size, but we knew we could do so much more in this space. Today, Target is a company that doesn’t just sell food. We are a company that celebrates food with a grocery business that’s driving trips and basket size, and even more importantly, loyalty. It’s become part of the differentiated experience that separates Target from the pack. Now before joining Target’s marketing team back in 2013, I spent my entire career working for iconic Food and Beverage brands. That experience taught me that Food and Beverage is a business that is deeply personal for consumers and that’s what our team is delivering at Target. Central to our success is the fact that what we are doing is 100% unapologetically Target. That means we are not copying competitors or trying to do something we are not. Instead, we are listening to our guests and we are leaning into what’s special about Target, to provide a better experience at a great value. That’s led to amazing results, a deeper sense of loyalty from our guests and the opportunity to do even more. A great example of this is our digital business. It’s hard to believe, but just two years ago, Fresh and Frozen Order Pickup in-store and curbside was just a small test in a few markets. But when the pandemic hit, we knew we had to accelerate our plans to meet guests’ fast pacing changing needs. So in a matter of just a few months, we installed refrigerators and freezers for Order Pickup in hundreds of stores nationwide. We trained thousands of team members to pick online grocery orders and we rolled out new marketing to raise awareness that, that if you are looking for safe, quick, easy option for getting your groceries and essentials, that’s by the way, free with no order minimum requirement, well, then Target is your place. When you think about the power of team, there are a few better examples than it has than how in the middle of the pandemic and the miss of peak level sales, we mobilized teams from across the company to undertake this monumental body of work, because it was the right thing to do for our guests and it was the right thing to do for our business. It really has been a game changer for so many families looking to limit trips outside their homes and into stores, and it has revolutionized our Food and Beverage experience. Turning Target into an omnichannel grocery powerhouse and we will continue to make our Pickup service even better. For instance, since launching Fresh and Frozen Pickup, we have also added Adult Beverage Pickup to about 80% of our stores. And I am so excited about what Mark just shared with Starbucks as part of our Drive Up experience. But it’s important to recognize that there’s still a lot of potential in front of us. But even as guests have started reclaiming some of their routines, including making more trips into our target stores, our digital business, fueled by Shipt and our Order Pickup services, continues to grow. Look at the numbers, at the end of 2019, our digital penetration in Food and Beverage was 2.3%. We ended 2020 at 9.6%. We closed 2021 at 13.2%. Our 2021 digital sales were up $900 million over 2020 and up by six-fold over 2019. Our Net Promoter Scores consistently show that guests love our digital services. So as we keep driving awareness and trial and adding new experiences, we anticipate continued growth. Another area we are driving awareness and trial has led to ongoing growth is in our owned brand assortment. Back in 2019, we rolled out our flagship-owned brand, Good & Gather. It was the largest owned brand launch ever. Today, it totals nearly 2,500 items across food and beverage, and is helping change perceptions about the shopping experience at Target. It’s affordable, it’s delicious, and it’s on trend. Whether you are looking for a quick easy Tuesday night dinner or something fun for entertaining during March Madness, Good & Gather is everything our guests have long expected from Target’s owned brands and today its growth is outpacing the industry average for private label brands. And there’s more, Favorite Day, a new brand of craveable baked goods and treats that draws guests into the food aisles. For instance, some of you might have come to Target, because their kindergartner lost a sneaker and she has gym class tomorrow. But while dad’s there, he might as well reward himself with a container of peanut butter Monster Trail mix for the home office. Now Target-owned brands are only part of the story. We are also elevating our assortment by diversifying our assortment, because we know that representation is critical to ensuring that we are -- that our offering is relevant to all our guests. Now when we decided at the beginning of last year to accelerate our commitment to adding more Black-owned brands, we had a dozen in our Food and Beverage assortment. But by changing the way we work, working hard to build new relationships and by using our size and scale to help brands grow for success in mass retail, we will end 2022 with more than 50 Black-owned brands in our Food and Beverage assortment. And we won’t stop there, because these brands don’t just make us more relevant, they make our assortment better. A great example is McBride Sisters wine, a Black female-owned business. We actually started working with them back in 2018 with a small partnership in about 100 stores in the South. Today, McBride Sisters is available in over 1,200 stores. Or Everything Legendary, a company one of our buyers saw on television and couldn’t wait to work with. So the next morning, he picked up the phone, sparking a relationship that led to Everything Legendary becoming Target’s first Black-owned, plant-based meat supplier. And Target has taken a strong position in coffee, a category where our guests have especially high expectations. Black & Bold is a three and half year-old company founded by two childhood friends, and they have put social impact at the center of their business model, giving 5% of their profit to support kids and underserved communities. It’s a company that we knew is a perfect fit for Target. They were our first Black-owned coffee brand. Today -- well, today, they are available in 1,300 stores and online. The response has been amazing. I love the sweet. Now you got to go to Target and by a Keurig and the Black-owned coffee, Black and Bold. That tweet also brings me to another key differentiator in Target. The role we play as part of Target’s multi-category assortment. That’s something that sets Target apart, on every day trips and especially around holidays and key seasonal moments. Target dominates holiday seasons, because guests love that they can get everything they need at Target, Halloween candy and costumes, the Thanksgiving turkey and games for the kids, while the adults are gathering in the kitchen or watching football, and of course, everything you need to make Hannukah, Christmas, Kwanza, 3 Kings Day special, including our robust selection of gingerbread houses. And this trend is continuing in 2022 as we saw during the first big seasonal moment of this year, Valentine’s Day. Through the power of the Total Target experience, the way we innovate, including our new Favorite Day, Valentine’s Sugar Cookie Kids, building on Target’s cachet and the gingerbread space. And the platform we provide for our national brand partners to do amazing things to grow their brands, our team came through with the kind of Valentine’s Day experience that makes Target special. In fact, we delivered our biggest Valentine’s Candy sales ever and we did it by the close of business on February 13th. We did it with a day to spare. And we reached another milestone on February 13th, finishing the week with record sales for snacks ahead of the Super Bowl. And despite all of this, what’s so exciting to our team is that there’s still a lot of room for us to improve, grow and gain even more market share in food for years to come. For instance, our research shows that even our best guests underestimate the breadth of our assortment, thinking we can only get some of their groceries at Target. As we continue to raise awareness of our full offering and we get credit for what we are already doing and the value that we provide, well, that is a huge opportunity. You heard Christina talk earlier about accessibility and affordability. That’s why the Digital Snap payment option we are rolling out this year is so important to Food and Beverage. It’s going to make our entire experience, in-store and online accessible to all families, allowing them to shop on their terms regardless of how they pay for their groceries. And as we move more product faster than ever through our distribution network, we are continuing to look for ways to move that product even faster. Some of our improvement will come from the way we work with our national brand suppliers, encouraging them to prioritize the growth opportunity that Target represents. We are also working to better utilize our food distribution centers to keep up with the fast growing demand. We will continue leveraging the power of our owned brands for everyday needs and big seasonal moments and I am excited that for the first time, we are going to have a holiday-themed Favorite Day assortment this year. And then there’s Circle. It’s especially crucial to what we are doing in food, raising awareness of our assortment and the value that we offer. As you heard from Cara, we are not done growing what’s already one of America’s biggest and most vibrant loyalty programs. And as our marketing team continues to build on the success of Circle, that’s going to help our entire business, but especially Food and Beverage. We have a lot to be proud of and there’s a lot of opportunity, and yes, a lot of work in front of us. But when I think about the future, I’d say, my optimism is rooted in our team. So before handing off to Michael, I will close with one more thought on team. Over the last couple of years, we have hired scores of Food and Beverage directors and coordinators, people with immense expertise in the grocery industry, who are helping us drive continuous improvement across our operations. A few weeks ago, I was visiting stores in Colorado and I was talking to one of our coordinators, Bridget. I asked her why she joined Target. Now keep in mind, this is someone who joined us from another retailer, someone who already had a good job and was doing well in her career. But when I posed this question, the first thing she said goes to what Brian was talking about in his intro, she talked about culture. Bridget was willing to take a risk in her career to leave a situation that was pretty good and give Target a chance, because of what she heard about being a part of this team. She told me a lot about the people she works with, the support she has to make decisions that are right for the guest and the partnership she has with team members working in other categories. Bridge told me it was everything I hope for and more. In this environment, the race for talent is just as intense as the race for sales. But every day, people are opting in to be a part of the Target team, because of what we have already achieved absolutely, but even more so because of the possibility of what we can do going forward. I am just as proud of that and inspired by that as I am of any of the numbers that we have shared today. Because when I think about everything in front of us, team members like Bridget and the human touch and the guest focus that our entire team brings to their work, well, that is what it’s going to ensure that our guests can always count on Target. Thank you so much and now I will hand things over to Michael.

[Michael Fiddelke, Chief Financial Officer]

Thanks, Rick. At the top of the meeting, Brian shared some of the key milestones from the last five years and I’d like to begin my remarks today by highlighting one more, which is the long-term financial algorithm we unveiled during that time. You will recall that the prior algorithm anticipated low single-digit sales growth, mid single-digit operating income growth, high single-digit adjusted EPS growth, after-tax ROIC in the mid- to high-teens. In the two years leading up to the pandemic, our business was consistently generating topline performance in line with the algorithm, as we saw average sales growth of 3.7% in 2018 and 2019. And on the bottomline during that period, our business grew somewhat ahead of the algorithm, with average adjusted EPS growth of 16.7% over those two years and an average after-tax ROIC of 15.4%. Since the beginning of 2020, COVID has changed nearly every aspect of consumers’ lives and we have all seen its impact on the retail industry. At Target, our team and durable model navigated these changes incredibly well, advancing our business far ahead of expectations. Simply put, over the last two years, our financial performance blew away the prior algorithm from top to bottom. And today, we are a much larger retailer, generating industry leading returns on capital. As we enter 2020, things remain far from ordinary, but a future beyond this volatile time is taking shape. And given the durable and sustainable model we have built and the ongoing investments we are making, we have updated our financial algorithm, which will define our long-term expectations beginning next year, in 2023 and beyond. This updated algorithm demonstrates our confidence in Target’s ability to continue growing on top of the incredible expansion over the last couple of years. Specifically, over time, our updated long-term algorithm anticipates mid single-digit annual growth in both total revenue and operating income, high single-digit annual growth in adjusted EPS, annual CapEx of $4 billion to $5 billion, after-tax ROIC in the high 20% to 30% range. Compared with our prior algorithm, this new one leans more into growth, driven primarily by comparable sales, combined with the benefit of new stores and continued growth from other revenue sources. Our confidence in Target’s ability to continue growing is based on all of the initiatives you have heard about today, which are designed to drive engagement, traffic and market share gains, including new stores, remodels, national brand partnerships and owned brand innovations, expansion of our same-day services, growth of new and emerging revenue sources, further rollout of sortation centers, continued investments in value and affordability, leveraging guest insights to enhance our assortment and promotions while personalizing the guest experience, elevating guest service through investments in the team, training and technology, all while investing in Target Forward to enhance the long-term sustainability of the business and the planet. Since today is the first time we have included other revenue in our topline guidance, I want to pause and cover some of what’s reflected in that line of the P&L and what’s been driving its growth, and while there are many smaller items represented on this slide, profit sharing income on our credit card portfolio has historically accounted for more than half of it. But in recent years, Roundel has been the primary growth driver of this slide, causing it to become its second largest component. I want to emphasize, however, that Roundel’s impact extends well beyond the amount reflected on this slide alone as a meaningful portion of Roundel’s income reduces our cost of sales, benefiting our gross margin. Among other notable drivers, Shipt membership fees are included on this line, along with the fees we received from third-party vendors on Target Plus, which are expected to grow over time. Moving to the operating income line, you will note that our long-term growth expectations are consistent with the prior algorithm, but we don’t rely on rate expansion to get there. Now I should quickly point out, we will happily welcome rate expansion when it happens for the right reasons, including the massive scale benefits we have realized over the last two years. But as I have said many times, given that we are focused on maximizing profit dollar growth, our plans account for the inherent trade-off between profit rates and topline growth. Put another way, a durable business model anticipates the need for continual investments to deliver sustainable growth. As such, we have built an algorithm based on driving and harvesting continued efficiencies in our business and continually reinvesting those savings in growth that further differentiates Target through our team, our stores and the entire guest experience. Among the factors that will drive our operating margin rate over time, we expect the headwinds and tailwinds will generally balance each other out. On the gross margin line, those factors include merchandise mix, channel mix and merchandising strategies. On the SG&A line, cost leverage, efficiency gains and team investments are most notable. On the D&A line, leverage and accelerated depreciation are the primary drivers. Also consistent with the prior algorithm, this updated one anticipates high single-digit growth in adjusted EPS, driven by mid single-digit growth in operating income combined with the benefit of continued share repurchases. Moving on to capital deployment, I want to first reiterate our priorities, which have remained consistent for decades. Our top priority is to fully invest in our business and projects that meet our strategic and financial criteria. We then look to support the dividend and build on our 50-year record of consecutive annual dividend increases. And finally, when we have capacity beyond those first two uses, we repurchase shares within the limits of our middle A credit ratings. Beginning with investments in our business, we expect ongoing CapEx will be in the $4 billion to $5 billion range annually and we will be focused first on our continued investments in our stores as hubs model, including new locations, full store remodels, fulfillment retrofits and projects to support key national brand partnerships. In addition, as John outlined, we will continue to invest in our upstream supply chain, sortation centers and DC automation to further reduce store workload. Even after these sizable CapEx investments, we expect to have ample capacity for shareholder returns as well, given the robust operating cash flow our business continues to generate, amounting to more than $8.5 billion in 2021. We will maintain our focus on growing the annual dividend, something we have accomplished for 50 consecutive years and look to maintain a 40% payout ratio over time. In addition, given our expectation for continued strong cash generation by our business, we will have the capacity to return capital through share repurchases within the limits of our middle A credit ratings. Finally, the most dramatic change from our prior algorithm pertains to our after-tax ROIC, where our updated range of expectations is 10-plus percentage points higher than before. This change highlights the asset efficiency of our stores as hubs model, which has unlocked the full potential of our store locations to flexibly serve our guests. With this model, our business has generated revenue growth of more than 35% or nearly $28 billion over the last two years, largely on the existing asset base. Now I want to move on to expectations for this year. As I step back and think about where we are and where we have been, it’s clear we are still in the midst of the pandemic, but we have entered a new phase. In this phase, we are still facing multiple challenges and uncertainties, including a tight labor market and persistent supply chain bottlenecks, which are contributing to higher inflation rates than we have seen in decades. And beyond those ongoing challenges, we will soon get to see how the consumer and economy moved beyond government stimulus as we compare over the large first quarter packages that benefited consumers both in 2020 and again last year. However, the last couple of years have also proven the durability and flexibility of our business and financial model. Specifically, relying on stores as fulfillment hubs allows our team to conveniently and efficiently serve our guests no matter how they choose to shop. This includes our suite of same-day services, which differentiate Target and provide a reliable, fast and easy shopping experience. Our model features a unique brand and balanced merchandise -- broad and balanced merchandise assortment, allowing us to serve guests and drive trips to serve a wide variety of wants and needs. And our long history of investing in value and affordability, which has long been a key differentiator, becomes even more important in an inflationary environment. As a result, with a proven model and the multiple growth investments we have highlighted today, we expect to continue growing the topline in 2022, generating a low-to-mid single-digit increase in revenue on top of historically strong growth over the last two years. On the operating margin line this year, we are planning to deliver a rate of 8% or higher, reflecting several deliberate rate investments to position our business for long-term profitable growth. First on that list are continued investments in pay and benefits to support our team as we build on the enormous progress we have made over the past few years. Beyond the team, this year’s investments in growth capacity will drive some rate pressure and we are planning for a small increase in markdown rates in 2022 as we move past the dramatically low rates we have seen over the last couple of years. Finally, and importantly, we will continue to focus on value and affordability in this inflationary environment. That means taking a thoughtful long-term approach to pricing decisions, ensuring that we deliver unbeatable value for our guests. We have many levers to combat costs and price is the one we pull last, not first. As a result, product costs within our assortment have risen faster than retails in recent quarters, reflecting this intentional approach in deliberate pacing. We expect this trend to continue, particularly in the first half of this year as we maintain our focus on affordability for our guests. Altogether, given our expectations for revenue growth and purposeful operating margin rate investments, we are positioned to deliver low single-digit growth in operating income dollars this year. Consistent with the longer term, we expect CapEx in the $4 billion to $5 billion range this year. This range is wider than we typically see at this point of the year, given continued delays in receiving fixtures and equipment, along with permitting and inspection delays in local communities. Put another way, our hope is to be at the top end of this range in 2022, but it’s possible that external factors will continue to affect certain projects. Regarding the dividend, later this year, we plan to recommend that our Board approve a per-share dividend increase in the 20% to 30% range, as we continue to move toward a 40% payout ratio over time. In addition, given our current cash position and expectations for strong cash flow, we believe our 2022 share repurchases will be at or above the $7 billion we accomplished in 2021. Putting all of our expectations together, a low-to-mid single-digit revenue increase, an operating margin rate of 8% or higher and continued robust share repurchase activity, we are positioned to generate high single-digit growth in adjusted earnings per share this year on top of 112% increase over the last two years. While I am not going to provide detailed quarterly guidance today, I want to pause and talk about how our 2022 profit performance is expected to play out within the year, given some of the unique factors involved. Specifically, in the front half of this year, we will be annualizing last year’s government stimulus, while facing ongoing supply chain pressures and other cost increases. In contrast, as the year progresses, we will begin comping over the period of higher costs that emerged in the back half of last year, while our supply chain and merchandising strategies have more time to adjust. As such, we expect our quarterly profit performance will be choppy during the year and generally improve as the year progresses. Q1 provides a timely example. This chart shows the variability of our Q1 profit rate over the last three years. Looking ahead, we expect our first quarter 2022 rate will move to something that’s relatively high to our history, but well below last year’s 9.8% rate, which was unusually high due to some unique factors. As I get ready to close my remarks, I want to pause and spend a minute talking about the key role that efficiency and disciplined expense management have played in our recent success and how we are committed to maintaining that discipline going forward and while I can provide many examples of our team’s cost discipline, I want to focus on a couple of notable ones. First on that list are meaningful efficiency gains we have realized in digital fulfillment across each of our digital fulfillment nodes, from package delivery to in-store pickup, Drive Up and Shipt, we have implemented multiple processes and process improvements and rolled out new technology to remove costs and increase speed to our guests. As a result, over the last three years, our average per unit digital fulfillment costs have declined by more than 50%, reflecting both efficiency gains and the benefit of mix as our most efficient same-day services have become a bigger and bigger portion of our digital sales. Looking ahead, the rollout of sortation centers presents a compelling opportunity to further reduce the unit cost of last-mile delivery. As John mentioned, in the Twin Cities market, where we have been piloting our first sortation center, we have seen our average per unit last-mile fulfillment costs go down by nearly one-third. The second example I want to highlight is the enormous benefit we have realized from the investments we have been making in our team. These investments have driven positive change to the lives of hundreds of thousands of team members, offering more steady income, pathways to career growth and education, and access to benefits that meet their evolving needs. But these investments are delivering efficiency and growth in our business as well. A portion of these gains come directly from the fact that, with high retention rates and improved training, our team can accomplish tasks more efficiently than in the past. But that’s just the beginning, because of our investments in the team, they are continually delivering higher levels of service, building on the trust we have established with our guests. This results in higher satisfaction scores, higher engagements and more return visits. And with higher service levels, Target becomes a more attractive partner for leading national brands, enabling partnerships like Ulta Beauty, Apple, Disney and Levi’s. Once you have accounted for all of the efficiency and topline benefits that have come from our team investments, you can see why I reiterate time and time again that caring for and investing in our team is the best long-term investment we can make in our business. In fact, whether I am looking at these investments as the CFO or through the lens of my earlier role supporting stores are leading pay and benefits for our HR team, the lessons are consistent, whether you are talking about physical capital or human capital, under investing might lead to great looking results over a very short period, but they are not sustainable over time. So before I close, I want to pause and express my gratitude to our team, many of whom are listening into this meeting today. You have delivered industry-leading results over the last couple of years, while taking care of our guests and each other. And importantly, during that time, you have made Target a much stronger company, positioning us to deliver sustainable, profitable growth from a significantly larger retail platform. I want to thank you all on behalf of all of our stakeholders. Now I will turn it back over to Brian for some closing remarks.

[Brian Cornell, Chairman and Chief Executive Officer]

We began this meeting talking about our path, five years, from $70 billion to $106 billion. We took you through our present, our strengths, our enablers and our culture of care. Now I’d like to talk about our future. We see a growth horizon for years to come. We will continue to invest in our strategies. We will continue to invest in our capabilities. We will continue to nurture a team that cares, cares about work that has purpose, cares about work that has meaning. We are growing teams that embrace our commitment to their career growth and development, our commitment to competitive pay and benefits, our commitment to being a premier American brand, our commitment to growing teams that care. Yes, we have the team and we have the strategy. We are 100% focused on the needs of American consumers. We have some of the most innovative and guest-centric capabilities in retail. We have a balance sheet that is the envy of the industry. And we have a record of cash generation you can count on provide incredible value to our stakeholders. Yes, as we look at the growth horizon in front of us, we see many opportunities. As we move forward, we will stay focused on helping our guests navigate through continued uncertainty with what’s happening in the world around us, the pandemic and the macroeconomic environment. This includes the highest inflation in decades and the gradual loosening of supply chain bottlenecks. We will stay focused on delivering value and affordability to our guests. We know how to deliver exceptional value and manage profitability. We can protect prices whenever possible. We can offer an unbeatable range of owned and national brands across our portfolio categories. We can make value into our assortment. And we will work with our vendor partners from sourcing, to production, to shipping. We will ensure that those prices we offer will always be among the best in American retail. We have a strong record of thoughtful investment in supply chain and innovation. We provide a competitive advantage by keeping our stores stocked and our digital orders filled. We have the flexibility we need to contain with constraints, so we can keep growing and thriving in any environment. And above all, we have the team. A few days ago, I visited several Minnesota stores. I was impressed with the Ulta Beauty displays, with our Disney shops, with our Apple stores, but what impressed me most was a team member who came up to me and said, Brian, I am so proud to be working at Target. I am proud of how you are handling the pandemic. I am proud to be part of the Target team. We have a team that’s committed to making target of the future even better, the Target of the future even stronger and the Target of the future even more caring. For everyone who’s listening today, including our teams across the globe, know we are already working to determine the best way to support humanitarian efforts for the people of Ukraine. As we have throughout the last couple of years, we will rally our team, put our resources to work to support families through these challenging times. And with that, I am going to ask all of our speakers to join me on stage and we will start taking your questions.

[Brian Cornell, Chairman and Chief Executive Officer]

All right. As we get started, I would ask you to wait for a microphone. Please introduce yourself, while you can see us wherever in a challenging time seeing you. So I will look for a show of hands. We have got one right up front.

[Chris Horvers, JPMorgan]

Thanks. Thanks. Chris Horvers, JPMorgan.

[Brian Cornell, Chairman and Chief Executive Officer]

Hi, Chris.

[Chris Horvers, JPMorgan]

Thank you for the presentation. So my first question, I have two is, in the long-term sales guide, it seems like you are baking in about a 3.5% to 4% comp, is that fair? And how are you thinking about the share gains component of that, because you have gained a lot of share in the past few years, 3.5% to 4% seems like a very sort of normal rate of consumption growth in the economy. So is that -- are you baking in any share gains?

[Brian Cornell, Chairman and Chief Executive Officer]

Michael, do you want to start and then I will come back and talk about our approach to share.

[Michael Fiddelke, Chief Financial Officer]

Yeah. As we think about the long-term algorithm, comp growth will certainly be the biggest driver there, where that lands in a given year might be up or down. But I will tell you, we expect to be a business that continues to grow and gain share year-over-year. The investments we are making are to drive outsized growth and that should come with share gains.

[Brian Cornell, Chairman and Chief Executive Officer]

Yeah. Hey, Chris. I will give you a sense for how we run the business each and every day. And I can tell you, this team spends hours each week, looking at share by category across our markets to make sure that we have the plans in place to constantly be taking share as we go forward. So there’s lots of different metrics we look at as a team. I would tell you this team spends a tremendous amount of time looking at share, share opportunities, building plans to make sure the over $10 billion of share we have gained in the last couple of years is something that we continue to move forward as the years go by. So we are very focused on share, and our guidance will certainly be a company that continues to take share across the entire multi-category portfolio both in-stores and from a digital standpoint.

[Chris Horvers, JPMorgan]

So my follow-up question is on gross margin. It seems like there’s going to be some pressure this year, more so in the first half on some of the price that you are absorbing. But if you look at the past few years since 2019, it looks like you have gained somewhere around 250 bps of promotional clearance efficiency. How do you think about the structural component of that over the long-term balancing higher levels of store productivity versus clearance and then normalized promotion?

[Michael Fiddelke, Chief Financial Officer]

I think your question grabbed about all the different variables there, Chris. So I will do my best to summarize. The shape of profit for the year will be like we described where you could expect it to build over the course of the year. When it comes to markdowns specifically, there’s some markdowns that we have been rooting for returning. To be better in stock with stronger inventory levels means a few more clearance markdowns and we are planning for that outcome in the upcoming year. When it comes to promotional markdowns, we should realize some sustained benefits in markdown efficiency as we have gotten bigger and we will stay close to the competitive environment to make sure that we are priced right every day and that we are competitive on promotion as well.

[Brian Cornell, Chairman and Chief Executive Officer]

Great. Looks like we have got a question right over here.

[Michael Lasser, UBS]

Good morning. Thanks a lot. It’s Michael Lasser from UBS. One of the key messages that you have delivered today as it targets a growth company. You have raised your long-term guidance to reflect that. What’s inspiring the view that growth is going to be higher moving forward than it’s been in the past? Is it that really you have proven it out over the last couple of years, and if that’s the case, what behaviors do you expect to be sustained moving forward that the consumers have been engaging in during the midst of a pandemic? And then I have a quick follow-up.

[Brian Cornell, Chairman and Chief Executive Officer]

Christina, do you want to spend a few minutes talking about some of the consumer dynamics we are looking at right now?

[Christina Hennington, Executive Vice President, Chief Growth Officer]

Yeah. I’d be happy to. First of all, we have seen a sustained growth over a multiyear period. That’s been led across the entirety of the portfolio. We have seen this past year alone double-digit growth in every single one of our key merchandising areas. The other thing is and Cara talked about this quite a bit, but the depth of engagement of the consumer leading to more trip frequency is what we believe will have continued sustainable growth, let alone all the initiatives we talked about. We are just in the beginning of our rollout of some of these national brand partnerships that are adding meaningful productivity, trip consolidation and opportunity for growth. So it’s a paradigm that we have seen proven out over the last two years and is continuing to give us the confidence that that’s going to drive growth going forward.

[Brian Cornell, Chairman and Chief Executive Officer]

Yeah. Michael, I might focus on 4 areas as we sit here today, one, for those of you who have been attending these meetings over the last three years, four years, five years, whether in person or from a virtual standpoint, one, I think the consistency of our strategy is critically important and I think we have got great alignment across the organization. As Christina mentioned, from a capability standpoint, we are still in some of the early days. As much as we have been talking about remodeling stores, time you go all the way back to a meeting in 2015, we have touched about half the chain and we have got another 1,000 stores that we are going to touch going forward. We are very excited about the pipeline of new stores. And as John talked about, various size stores that allow us to maximize share opportunities in these catchments. From a same-day fulfillment standpoint, while we are very excited about the progress we made, Rick and Mark can talk about the potential upside as we think about temperature controlled products going through Drive Up and Pickup. So in so many areas from a own brand standpoint, from a national brand standpoint, rolling out these partnerships that we talked about a lot today, but many of them are still in limited locations. There’s tremendous upside there. We think as we continue to build out our Circle and our connection with our guests, there’s continued upside opportunities there. So a consistent strategy, capabilities that are still maturing, but I will come back to the importance of our team and culture and the investments we have been making and those are only going to strengthen our business model over time. The one point that perhaps we didn’t call out specifically that I think is really a hallmark of Target today is we combine that focus on strategy and building capabilities and investing in our team and culture with a team that’s focused on execution. And if you look at the results, how we got from $70 billion to $106 billion, yes, the strategy was critically important. And listening to the guests as we formulate that strategy was incredibly valuable. The capability certainly allowed us to accelerate during the pandemic. Those investments in team and culture, they have supported us throughout the pandemic. But this is a team that’s been executing every day from a store standpoint, from a digital standpoint, category by category. And Michael, I think our execution will only improve in the out years, which gives me tremendous confidence in the future growth and market share opportunities we will capture.

[Michael Fiddelke, Chief Financial Officer]

Yeah. The only thing I might tack on to that is the algorithm contemplates those investments. The CapEx we are putting to work, the way we have described operating margin and the fuel we can create to reinvest in the business, those doesn’t just happen, you have to invest in it, the algorithm contemplates that.

[Michael Lasser, UBS]

And my second question is Target’s operating margin has gone from 6% to 8% over the last couple of years. Presumably, a lot of that’s come from a 30% increase in your store productivity, which is pretty extraordinary, coupled with a reduction in your average unit cost to fulfill online orders. The expectation coming into the meeting was you will give a little bit more of that 8% margin back. You are arguing, no, we are going to keep that. So what is it about what’s happened that you think is more sustainable moving forward that contrast that prior to the pandemic? Thank you.

[Brian Cornell, Chairman and Chief Executive Officer]

Michael, I might ask John Mulligan just spend a few minutes just talking about the benefits of scale and as we have added almost $28 billion to our system. And we talked about -- John talked about some of the highlights of, our average store has added $15 million of growth and those scale benefits and efficiency help fuel our business going forward. So, John, you may want to highlight some of the benefits from an operational standpoint.

[John Mulligan, Executive Vice President and COO]

Yeah. I think that’s right. I mean you hit on what the two big drivers are. One is scale and as we get bigger, there’s benefits that flow through the individual store P&L. First of all, they are leveraging all the fixed stuff. That’s the easy part. But everything becomes more efficient. When we go from $40 million to $55 million, we may only add one truck a week to that store or two trucks a week. We don’t double the number of trucks that a store has to work. So you gain efficiency there in the backroom as you are moving inventory to the front of the store. Things like that just create efficiency. Again, once you are out on the floor and stocking goods, if you are a $40 million or $55 million store, that doesn’t change, you are out on the floor. If I put two on the shelf or three on the shelf, nothing really changes there. There’s a marginal amount of incremental work, right? So those are the little things that create additional scale in our hourly payroll, which, of course, is the biggest expense we have. That flows down through the entire P&L. And then, of course, Michael talked about our same-day fulfillment and our ship-to-home fulfillment. We have improved individually each of those paths to the guests. Each one of those services, the cost structure and the mix helps us, because the most -- the best NPS scores, the ones our guests like the best are same-day services, which are the most efficient as we have been talking about for a long time. And then you layer on sort centers, where we said -- and look, we have had this open for 14 months, just 14 months and we already said, it’s way cheaper than what we were already doing. So there’s some -- I mean you have seen us do it over the last five years, continue to hone processes and improve them. Mark and his team, improving the path, they are improving the pick, improving the prep, improving the pack. That’s a lot to say, improving all three of those. And we will do that all over again with sort centers. So so much runway for us to continue to drive efficiency and bring expense out and continue to invest in service on the floor at the store, just a huge opportunity for us.

[Brian Cornell, Chairman and Chief Executive Officer]

Michael, just to build on that. I might ask Mark Schindele to start, just talk about some of the benefits that he’s seeing, because of that scale and the growth in store operations. And then Rick, one of the areas where I think we have seen a significant change in scale is in Food and Beverage. It’s a $20 billion company now. And because of that growth rate and the change in our turns, particularly in fresh foods, there’s enormous benefits that we are deriving. So, Mark, why don’t you start from a store standpoint with a few examples, and then, Rick, I think you can walk through some of the benefits we are seeing, because of the increased volume we are seeing in stores, the increased turns and just the productivity we are gaining today.

[Mark Schindele, Executive Vice President and CSO]

Yeah. Thanks, Brian. John shared a bit about how we are adding scale in our stores. And a couple of things I’d like to add in, when we think about our same-day services, that business just continues to grow and that example of putting an extra box on the shelf also plays out in same-day service where you can grab an extra bag and as we see our baskets grow, our trip frequency grows, our productivity grows. And we have said it often, but our most important investment we can make is in our team and our team is doing an incredible job executing and delivering scale and efficiency every single day and creating that incredible experience for our guests.

[Rick Gomez]

Yeah. I mean specific to Food and Beverage, we have had a tremendous positive momentum over the past couple of years. We have been able to deliver double-digit growth. On top of double-digit growth, we have been able to gain billions of dollars in market share over the past two years. And part of those benefits have come with that bigger businesses, quite frankly, we are more credible in the grocery business. And as a more credible grocer in the grocery business, we have more opportunities to partner with our national brand partners. And so we are in negotiations when products are on allocation or they are limited due to supply chain constraints. Our national partners recognize that Target is a place to grow and they are looking to us first. And I think that’s a change of where we are today than where we have been in previous years. The other thing I would just say when it comes to things like produce, the faster we are moving, the fresher the product, the less the waste. So it helps us not only from a financial perspective, but actually from a guest experience perspective as well.

[Brian Cornell, Chairman and Chief Executive Officer]

Let’s go to another question. I think we have got one right back here.

[Antonio Morales, Signum Research]

Hi. Antonio Morales from Signum Research. You were talking about the national partners and national things. So do you have any plans on expanding to the international market like around the world in the short-, mid- or long term?

[John Mulligan, Executive Vice President and COO]

Yeah. I will take this one. We get this question all the time, and certainly, I will never say never. But for today, as we look at the opportunities that we have right here in the United States, we are going to stay very focused on the foreseeable future, executing our plans, building on our momentum and investing in the United States before we start to think about any type of future international expansion.

[Brian Cornell, Chairman and Chief Executive Officer]

All right. We got one right back here to the left.

[Peter Benedict, Baird]

Peter Benedict at Baird. First question, just on Roundel, I think you noted that it delivered $1 billion in value to Target. Can you define value, is that revenue, is that profit, is that influenced sales, I just want a clarification on that. That’s my first question.

[Brian Cornell, Chairman and Chief Executive Officer]

Cara, why don’t I ask you to start with some highlights on Roundel, and Michael, maybe you can fill in the blanks from a financial standpoint.

[Cara Sylvester]

Yeah. It’s incredibly exciting to talk about the Roundel story. And the Roundel business is not a new business for us and we have actually been able to scale it quite quickly over the last several years by really being differentiated by focusing truly at the guest at the center. And what we find is that our vendor partners love partnering with us around Roundel given those guest insights and they -- we have been able to actually keep the guests at the center and scale that to $1 billion. We are looking to scale that even quicker to $2 billion over the next couple of years by again being truly differentiated and partnering with our vendor partners. They find incredible value in partnering with us on those guest insights. Michael, do you want to talk a little bit about the financials, how they roll through?

[Michael Fiddelke, Chief Financial Officer]

Yeah. I touched on this a little bit in my remarks. You can think about $1 billion as kind of the size of the total Roundel business and there’s a piece of that that shows up in other revenue, and there’s a piece of that helps us out on the gross margin line, too. But you will notice, we don’t describe it as some separate other business. Cara’s point on it starts first with our guests, when we can solve for a guest problem arm and arm with a business partner, that creates value in total and part of that is captured in that $1 billion, part of that is captured in a better guest experience overall.

[Brian Cornell, Chairman and Chief Executive Officer]

Let’s see, right up front.

[Robby Ohmes, BofA Securities]

Robby Ohmes at BofA Securities. This might be a question for John Mulligan. The question is, you guys mentioned midsized stores and why not larger stores and help me understand sortation centers and that’s taking pressure off the stores and so do you not need larger stores? And I think you mentioned that you can put a Target store kind of in any kind of real estate and that’s -- how does that work with the store as hub strategy, because I would think you would need certain kind of real estate to do the stores as hubs. So just help me understand what you guys are doing?

[John Mulligan, Executive Vice President and COO]

Yeah. Well, first, let me be clear. We will open up big stores if we find opportunities to open up big stores, no question. We are going to open a 144,000 square foot store this year. We are excited about that. So we will keep doing that. We went from big to small, almost exclusively small, 15,000, 20,000, 25,000, maybe 30,000. Those are great sites. We will continue to do that. We love those, one just a few blocks from here soon. What we are saying -- this middle ground that we haven’t really built in the past, and Brian and I have walked in those. We built some 60,000, 70,000, 80,000, even 90,000 square foot stores, a lot of old Kmarts. Love them. They are big enough that you get the entire Target experience, but the backroom is big enough so that we can do all of our digital fulfillment as well. So we get this great middle ground between the two and I think our message today is we can do all of that. Over the past few years, between our properties team, store design, construction, Christina’s merchant team, because assorting these stores is critical getting the right assortment for the neighborhood to serve that community is incredibly important, we can do all of that. And so, there are these opportunities now out there where you can get into a dense urban neighborhood, a dense suburban neighborhood with a 90,000 square foot store. Great, we will do that all day long. I think the short center, the great thing about that is it gets stuff out of the backroom faster. Much like we want to get the inventory on to the front of the store, which Mark’s team has done an outstanding job over the last few years, we want the boxes out of the backroom. All of that creates capacity in the backroom, more pack stations, more volume, keep it moving, just keep things moving and that’s why the sort centers are so important to that strategy. But we will do whatever from an opening perspective.

[Steph Wissink, Jefferies]

Hi. It’s Steph Wissink from Jefferies. I have a question for the panel more broadly, but it’s really about headroom. I think you mentioned on a productivity basis and one of the most impressive slides is the sales increase versus the number of stores. Talk about how much headroom you have from a productivity per box basis and how does that factor into your growth algo? And then, Cara, I have a question for you, this is a fun one. But most search-for brand or category that you don’t currently carry that you would love to have?

[Brian Cornell, Chairman and Chief Executive Officer]

Michael?

[Michael Fiddelke, Chief Financial Officer]

Yeah. So, John, has talked in the past about the capacity we have to continue growing in stores. And the thing I’d come back to there is we have seen over the last couple of years how well stores and stores as hubs scale. I mean we have got productivity gains and productivity per-foot gains across the chain. It’s actually true that the biggest stores generated the biggest productivity gains over the last few years and so that speaks to the headroom we are creating. We know the throughput we can get in stores and if you kind of go through quartile by quartile in our stores that implies we have got a lot of stores that could get a lot bigger before they tap out. And so we feel really good about the opportunity to keep growing the business, but stores as hubs is the thing that enables so much of that capacity.

[John Mulligan, Executive Vice President and COO]

I think the other thing I’d add on is, as inventory turns increase with scale, you just push things through faster. Speed and flow of inventory is the key to the whole game like we were just talking about with Robby, and as that happens, we see it in our largest stores, they just move inventory. It’s constantly moving through. It shows up at night. It’s out the store the next day. That’s capacity. You are just moving inventory. So, a lot of headroom for growth from that perspective.

[Brian Cornell, Chairman and Chief Executive Officer]

Cara, you want to tackle search, most popular item?

[Cara Sylvester]

So that’s a fun one, too, Steph. Thanks for the question. I think our search terms and what the guest is looking for changes seasonally all the time, always seasonal products, always newness and always the hot items that are out there. And so we see a really close look at our search really on a weekly basis and work with our merchant partners to share back those insights. What I would tell you is over the years, the search insights, of course, are going to impact and we are going to feed those over to the merchandising team for them as they are constantly looking for the right mix of our owned brand products and our national brand products, and so we will continue to make sure we are feeding those over. Christina, is there anything you would add?

[Christina Hennington, Executive Vice President, Chief Growth Officer]

I think that’s really well said and you would be surprised at how quickly those ebb and flow week by week as the consumer went through so much change over the year. And I think that’s where the breadth of our multi-category portfolio has played to our advantage that, whether it’s a mask they are looking for or Xbox or it’s a new spring dress, we have been able to be there for them in all those moments.

[Brian Cornell, Chairman and Chief Executive Officer]

We have had a question towards the back.

[Ed Yruma, KeyBanc]

Hey. Thanks. This is Ed Yruma from KeyBanc. Two quick ones for me. I guess, first, on the food assortment, you have done a very impressive job, adding more food over the past couple of years. I guess as you think about the incremental share opportunity, are there more foods you can add, do you think you can become that weekly grocery destination? And then as a follow-up, sometimes when you head into kind of a sticky consumer environment, we see trade down, focus on value, are you seeing any of these leading indicators that the consumer is feeling pressured? Thank you.

[Brian Cornell, Chairman and Chief Executive Officer]

Rick, why don’t you start from a food standpoint and then we will come back to some of the consumer trends we are seeing right now.

[Rick Gomez]

Sure. To talk about food, we -- as I said before, have a lot of positive momentum on what we are seeing in the food business. We continue to see opportunity to continue to grow as we think about our assortment. And I would say this, the real three key drivers of the growth that we see in the future. The first is the digital business, which is our same-day services, industry-leading in general, but particularly relative to our competitive -- our grocery competitive set. It’s a real step up, not only from an experience standpoint, from a convenience and ease perspective. I think John mentioned the NPS scores. It’s a differentiator relative to other particularly grocers. The second thing that I would say is different about our assortment, which you mentioned and the competition is our owned brands. Good & Gather, only two years in and is already over $2 billion in sales. Favorite Day is brand new, it developed during the pandemic and is already off to a really strong start. And then we have Market Pantry, which is a little bit lower price point, but we think will be very relevant during these inflationary times. So we think that assortment of owned brands, when we stack it up to our competitors, they are growing faster than grocery industry private label brands. We think that’s the third -- the second key driver. And then the third, I think, will be seasons and we talk about that a lot. But we -- whether it’s Easter or Valentine’s Day, Halloween, Mother’s Day or upcoming Easter, that’s where we do really, really well. And Easter is coming up, and I think Target’s one of the few places where you can get everything you need for the holiday. You can get the eggs for Easter. You can get the candy for Easter. You can get the basket. You can get home decor and you can get the Easter dress. And I think that’s a real competitive advantage for us, particularly versus a lot of our grocery competitors.

[Brian Cornell, Chairman and Chief Executive Officer]

Yeah. And from a consumer standpoint, I will start and I will let Christina jump in. Let’s go back to what we saw in the fourth quarter. And obviously, we saw comps up 9%, but it was driven by great traffic and we saw a pretty balanced growth between both physical stores and digital. So we are clearly seeing a guest in a consumer who’s shopping in both channels. As we sit here today, we are listening very closely to the consumer. And if there’s anything, I think, we have learned over the last two years, is just the resiliency we are seeing in the U.S. consumer environment. But specifically, we know consumers are still worried about COVID, yet they are looking for that touch of normal in their lives and we saw that play out during the Super Bowl. Rick talked about some of the results we delivered. But that consumer and the Target guests, they wanted to be together with friends and family for the first time in a couple of years to enjoy the Super Bowl. We know we have got a consumer who is looking for value. But as Christina noted, they are looking for newness as well and anything new is exciting and showing up in that basket. There’s clearly inflationary concerns that are starting to pop up in the conversation, but it’s still a U.S. consumer with a pretty healthy balance sheet. So we are going to have to watch this carefully. We know March, April are going to be important timeframes as the consumer overlaps, some stimulus checks and child care. So we are taking a cautious approach to the first quarter. But we continue to see a very resilient consumer who has a solid balance sheet and is balancing that desire for value and concerns with inflation with a desire to find something new and just go back out and experience everyday life.

[Joe Feldman, Telsey Advisor Group]

Hi. Sorry. Joe Feldman, Telsey Advisor Group. I wanted to go back to the sortation centers. I may have missed, but how many do you plan for this year and then beyond, like it seems like you may only need one per major market based on the map that you put up. But and then maybe the -- I don’t know if you want to share the cost with us, but to build it, to hire people, all of that would be great?

[Michael Fiddelke, Chief Financial Officer]

Joe, you know us better than that.

[Joe Feldman, Telsey Advisor Group]

You are right.

[Michael Fiddelke, Chief Financial Officer]

We will by the end of next week or next month, we will have six of them open. We are thinking probably five more later this year. And of course, part of this little unknown, same supply chain problems that have impacted our ability to remodel and open new stores, things are slower, permits are slower, everything slower, we will see. But that’s where we are headed. And we think there’s an opportunity over the next four years or five years to continue to build at at least that pace, perhaps, a little bit faster, but when you look at the major or urban areas across the country, lots of opportunity, and I wouldn’t say, in the case of many cities, it will not be just one per city. Just the way you navigate some cities and the way they are carved up makes that harder to do and so the opportunity for us to do several in the city is there for us. But that’s all down the road. So you will see us continue to build into it.

[Brian Cornell, Chairman and Chief Executive Officer]

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

[Kelly Bania, BMO Capital]

Thanks. Kelly Bania from BMO Capital. Question about the longer term operating income outlook, I think, Michael, you mentioned you will welcome the rate growth when it happens for the right reasons. So maybe just help us understand what are those right reasons?

[Michael Fiddelke, Chief Financial Officer]

Yeah. I think the last two years are pretty instructive. The rate growth we saw over the last two years came from scale benefits. That’s a more sustainable version of rate growth. But to be clear, that’s not the number in the P&L we are optimizing for. It’s profit dollar growth over time. We would expect to find the fuel to fund the investments to power the topline and that’s kind of the thing that’s at the heart of the algorithm. But when we see sustainable rate growth, we will welcome it just like you saw over the last couple of years.

[Kelly Bania, BMO Capital]

All right.

[Brian Cornell, Chairman and Chief Executive Officer]

Let’s see.

[Greg Melich, Evercore ISI]

Thanks. Greg Melich with Evercore ISI. A follow-up and then my question. The follow-up is AUR, this year, if we think with inflation out there, how do you think AUR plays out this year in that guide in terms of traffic and ticket or units?

[Michael Fiddelke, Chief Financial Officer]

Yeah. I don’t know if my crystal ball is that clear, Greg. But the story that we have really seen most recent quarter to start with is the incredible growth in traffic. There’s some puts and takes in basket, but virtually all of our growth in Q4 came from traffic. So we will -- as you heard today, we will continue to be focused on protecting value and making sure that our price position is strong and that’s working. It’s leading to deepening engagements. It’s leading to more trips to Target. And so where exactly AUR lands over the course of the year, I think, is going to be a journey we will all take together and we will see. But traffic has been the story for us.

[Greg Melich, Evercore ISI]

Okay. And then maybe a 3P fulfillment, you have mentioned a little bit about extending the aisle with some vendors, with Roundel doing well. I guess I’d like to understand, what is the right assortment for Target both in-store and online? Do we want to get to 10 million SKUs, do we need to, is it curated, are we selling Roundel services to trusted vendors as opposed to United Airlines? How do we think about that?

[Brian Cornell, Chairman and Chief Executive Officer]

Christina, I might ask you to start, and Cara, I know you have got a point of view on this topic.

[Christina Hennington, Executive Vice President, Chief Growth Officer]

Yeah. First and foremost, our point of view on assortment is all about curation. It’s making sure that we understand the consumer and that we can craft an assortment that starts with the balance of really well-designed, high-quality and value-owned brands, coupled with the leading national brands that consumers would expect to find. By having a curated assortment, it fuels the stores-as-hubs model, because there isn’t this long extension that we have to fulfill from other parts of the network. We are using the inventory base of the stores, which creates efficiencies, which creates speed, which creates lower costs. Additionally, we think it’s a guest benefit. The ability to navigate the assortment and navigate the paradox of choice is real and so creating options that are much more relevant in a more tight environment is important to us and that extends to our marketplace. And so, Cara, can talk a little bit more about how we think about that, but it’s really a complement hand in glove.

[Cara Sylvester]

Absolutely. And it’s in lockstep with our merchant partners and our marketplace is truly differentiated, because it is invite-only. And it will remain invite-only as we think through who are the right trusted partners that we are looking to actually complement our assortment with. And then just a comment on your Roundel question, similar story there, that growth that I talked about of getting to $1 billion is largely with our vendor partners who are finding incredible value within the guest data and insights that we have and we see a lot of headroom to grow with those trusted vendor partners as we think through the coming years ahead.

[Brian Cornell, Chairman and Chief Executive Officer]

So, I will wrap up from here, and I want to start by thanking all of you for joining us in person. We have really been looking forward to this. It’s been a long couple of years. I hope you walk away with a clear sense of our direction as a company, the strategies that will guide us going forward, the capabilities we will continue to invest in, the important role that our team will play and the unique culture that I believe really defines and separates us from many of our peers. So I hope you leave recognizing we are committed to being a growth company, one that is a profitable growth company for years to come, great stewards of capital and will provide great returns for shareholders. But I really appreciate your time, your engagement today and we look forward to seeing you again in person next year. So thanks for joining us. Stay well. Stay safe. We hope to see you again soon.