May 19, 2021

Target TGT Q1 2021 Earnings Call Transcript

Target TGT Q2 2020 Earnings Call Transcript
RevBlogTranscriptsEarnings Call TranscriptsTarget TGT Q1 2021 Earnings Call Transcript

Target (symbol TGT) reported Q1 2021 earnings in a conference call on May 19, 2021. Read the full earnings conference call transcript.

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Speaker 1: (00:00)
Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation 2021 First Quarter Earnings Release Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will invite you to participate in a question and answer session. At the close of prepared remarks, we will open the queue for the Q&A session. At that time, if you have a question, you will need to press star one on your telephone. As a reminder, this conference is being recorded, Wednesday, May 19th, 2021. I would now like to turn the conference over to Mr. John Holbert, Vice President Investor Relations. Please go ahead, sir.

John Holbert: (00:47)
Good morning, everyone, and thank you for joining us on our First Quarter 2021 Earnings Conference Call. On the line with me today are Brian Cornell, Chairman and Chief Executive Officer, Christina Hennington, Chief Growth Officer, John Mulligan, Chief Operating Officer, and Michael Fidelki, Chief Financial Officer. In a few moments, Brian, Christina, John, and Michael will provide their perspective on the first quarter and their thoughts on our outlook for the second quarter and beyond. Following their remarks, we’ll open the phone lines for a question and answer session. This morning, we’re joined on this conference call by investors and others who are listening to our comments via webcast. Following the call, Michael and I will be available to answer your follow-up questions.

John Holbert: (01:28)
And finally, as a reminder, any forward- looking statements that we make this morning are subject to risks and uncertainties, the most important of which are described in our most recently filed 10K. Also in these remarks, we refer to non-gap financial measures, including adjusted earnings per share. Reconciliations of all non-gap numbers to the most directly comparable gap number are included in this morning’s press release, which is posted on our Investor Relations website. With that, I’ll turn it over to Brian for his thoughts on the first quarter and his perspective on our outlook. Brian.

Brian Cornell: (02:00)
Thanks, John, and good morning, everyone. The first quarter felt like the first step towards a post-pandemic world, and our team and operating model continues to walk alongside our guests and communities, serving them well to another chapter of growth and healing. From our unique mix of categories, [inaudible 00:02:19] an umatched set of fulfillment options, our business is delivering what consumers want and need each and every day. The results we delivered in Q1 are nothing short of outstanding. Comparable sales grew by nearly 23%, making it our fourth consecutive quarter in which comp sales grew more than 20%. Maintaining that pace this quarter was especially notable given that we were comping over double digit growth a year ago. Over the last two years, comp sales have grown about 36% and total sales have expanded by $6.5 billion in the first quarter alone. This year, sales growth reflected more than $1 billion in market share gains, a clear signal of how relevant guests find our experience even though they have many more shopping options available compared with this time last year.

Brian Cornell: (03:17)
In a quarter featuring many things to celebrate, I’m most proud of the performance of our stores. With vaccinations rolling out across the country and consumers increasingly comfortable venturing out, we’ve seen an enthusiastic return to in store shopping. Guests are happy to come back to our stores because they love the environment we’ve created and invested in over time. As a result, our store comp sales increased 18% in Q1 driven almost entirely by higher traffic and accounting for the vast majority of our growth. Contrast that to a year ago when the channel mix of our business was changing rapidly with guests leaning heavily into our digital fulfillment options, essentially, our same-day services in the midst of a nationwide lockdown. A year ago on this call, we were highlighting a digital comp of 141% driven by growth in our same-day services of more than 275%.

Brian Cornell: (04:23)
These two contrasting scenarios clearly demonstrate the flexibility of our operating model, but they also show how our stores and digital channels compliment each other to drive guest engagement. Even though digital stole the headlines a year ago, our store comps actually increased about 1% in the first quarter last year. And this year, while store sales accounted for most of our growth, first quarter digital comp sales also grew 50% on top of last year’s enormous numbers. This is the power of [inaudible 00:04:59]. Guests turned to target because of our stores and our digital options, not one versus the other. And, for us, the distinction between a store sale and a digital sale is largely irrelevant, because of our unique stores as its hub model, more than three quarters of our first quarter of digital sales were fulfilled by our stores. That means, in total, more than the 95% of the Target’s first quarter sales were driven by our store assets, store inventory, and store teams.

Brian Cornell: (05:29)
This store driven growth is translating to outstanding bottom line performance. Our first quarter adjusted EPS of $3.69 establishes a new all time high for the company. Compared to 2020, when profitability took a temporary dip, this year’s performance represents an astounding increase, more than six fold. If we look back to first quarter 2019, this year’s adjusted EPS was more than 140% higher, demonstrating how far our business has advanced in a short time. I want to pause here and thank our team members across the world. They have consistently demonstrated incredible passion, commitment, and focus to serve our guests and take care of each other. I am grateful and proud to serve with this outstanding team and to share the incredible business results they’re delivering quarter after quarter. It’s also important to highlight how the category mix plays a key role in the flexibility of our model.

Brian Cornell: (06:35)
For instance, with guests venturing out, we’ve seen an incredible rebound in apparel sales, with Q1 comp growth of more than 60%. On the other hand, and as expected, we experienced slower growth in food, beverages, and essentials as we annualize the peak stock-up period a year ago. Most notably, we saw continued strength in our home and hard lines categories, which delivered outsized growth on top of very strong numbers a year ago. Christina will provide more details in a few minutes. A relentless focus on operational excellence is another key factor in our performance. This is best summarized by our guest satisfaction scores, which, across all of our services, have remained stable or moved higher despite record growth that’s now compounding on a two-year basis. This is a clear testament to the diligence of our team and the return on our investments in training, hours, and wages over the last several years.

Brian Cornell: (07:41)
Over those years, sales in our same-day services, order pickup, drive-up and ship, have accounted for the bulk of our digital growth, and they grew to well over half of our digital sales in the first quarter. same-day penetration has more than doubled since Q1 of 2019, when sales through these services accounted for less than a third of our digital sales. While all three same-day services continue to grow faster than overall digital, drive-up has been a standout and consistently receives the highest ratings of anything we do. This service only accounted for about 5% of our first quarter of digital sales two years ago, and that ratio expanded to more than 30% this year. Put another way, in the first quarter alone, drive-up sales have grown by well over $1 billion in the last two years. As John will outline in more detail, we continue to expand the assortment available for drive-up and we’ve earmarked capital investments to make drive-up even more convenient for our guests and efficient for our team given that we anticipate continued rapid growth of this service.

Brian Cornell: (08:52)
While it’s gratifying to see what our team has accomplished over the last several years, there’s much more opportunity in front of us. We’re planning significant investments in our store assets as we remodel hundreds more locations, roll out new Ulta and Apple shopping environments, invest in the efficiency of our same-day services, and enter new neighborhoods by opening new small and medium sized stores. We’re also investing in our brand portfolio as we focus on presenting the best owned and national brands to our guests, which we highlight through the best in store and digital shopping experience in the market. We’re also making continued investments in safety and cleanliness, reinforcing the trust and confidence we’ve already established with our guests. And we continue to invest in our team in their pay, benefits, training, and advancement to ensure that Target continues to be a destination for top talent.

Brian Cornell: (09:49)
And as you’ve seen for many of our recent announcements, we’re investing to leverage our size and scale, purpose, and values to work for all families. This summer, we’ll share more information about our refreshed enterprise sustainability strategy that further draws on our company legacy of corporate responsibility, diversity, and inclusion, and community engagement. As part of our immediate efforts, we’ll focus on designing and elevating sustainable brands, innovating to eliminate waste, and accelerating opportunity and equity in all communities, all in service to a safe and prosperous future for all. It was four years ago at the beginning of 2017 that we first announced our plan to double down on investments and growth. The decisions we announced that day and the investments we made in the intervening years left us well prepared to handle all the challenges and opportunities presented by the pandemic.

Brian Cornell: (10:53)
In that first quarter of 2017, our business generated sales of just over $16 billion and adjusted EPS of $1.21. Four years later, first quarter sales have grown nearly 50%, and adjusted earnings per share have tripled. From today’s vantage point, the opportunities ahead of us both this year and overtime are just as bright as they were on that day four years ago. Despite what’s already been accomplished, we’ve only scratched the surface of what this brand and this team can accomplish over time. I’m excited to stand with them as we write the next chapter in this great company’s history. Now I’ll turn it over to Christina who will share more perspective on our first quarter results and for priorities going forward. Christina.

Christina Hennington: (11:47)
Thanks, Brian. As we enter 2021, we knew it would be a year like no other. That’s because we’re off of 2020, which was by far the most unusual year any of us have ever experienced. As such, we knew there’d be a wide range of potential outcomes for our sales, both by category and in total. And so far, with one quarter behind us, results have been extremely positive across every dimension. In the face of this strength, we’ve seen an incredible response from our teams across the board, from our stores to our merchants, to the supply chain who’ve all worked together in service of our guests. While there are many ways to measure the impact of those efforts, guest loyalty and market share are the two most important measures of success in this volatile time. Consequently, it’s incredibly gratifying to see that across every one of our guests segments in the first quarter, we measured an increase in average trips per guest and a larger average basket. This led to more than $1 billion of additional market share in the quarter, on top of $1 billion gain a year ago.

Christina Hennington: (12:49)
In terms of category performance, we saw the strongest growth in our apparel business, which delivered comp growth in the low 60% range. As Brian mentioned, we saw a temporary dip in apparel sales last year when first quarter counts were down around 20%. Following this year’s strong increase, first quarter apparel sales have grown approximately 29% over the last two years. Home also delivered incredible growth with an increase in the mid-30% range on top of a high single digit increase a year ago. Within home, growth was strong across the board, with the most robust performance in our decorative home and seasonal businesses. Hard lines also delivered huge volume with comp growth above 30% on top of a 20% increase a year ago. Results were led by sporting goods and toys, which both saw comps above 40%. Beauty comped in the high-10s on top of a high single digit growth a year ago. Within beauty, the skincare, sun care, and bath categories delivered comp growth in the mid-30% range with cosmetics growing in the low-20s.

Christina Hennington: (13:55)
Finally, our essentials and food categories both delivered comps in the low to mid- single digits. To see healthy growth on top of last year is remarkable. As you recall, a year ago, guests were aggressively stocking up their pantries, fridges, and freezers, and we sold virtually every unit of paper goods that we owned. Beyond category strength, I want to pause and also highlight that sales on Target’s own brands grew approximately 36% in the first quarter, the strongest increase we’ve ever recorded. Because of our unique capabilities in product design, development, and sourcing our own brand products offer an unbeatable combination of design, quality, and value. These brands aren’t something that our guests pick up while they’re at Target. They’re a big reason why they shop at Target, which is why we continue to invest in them.

Christina Hennington: (14:47)
We frequently talk about performance by category and our brands because it’s important that our entire portfolio is healthy and well positioned to meet our guests’ needs. But it’s also important to realize that they create value for our guests beyond simply the sum of the parts. Rather, it’s the combination of all our offerings, including categories, brands, and services across our distinct multi-channel experience that allows Target to serve our guests’ needs today and over time. Last year, as guests focused more on enjoying time at home, that had implications not just for our home category, but also for hard lines, food and beverage, and essential. And they’re focused on health and well-being effected trends in active wear, beauty, healthcare, food and beverage, and more.

Christina Hennington: (15:33)
The same is true for our sales channels. As guests last year focused on social distancing, they leaned into digital, including our same-day services. And this year, as they’re looking to get back out in public, they’re flocking to our stores based on the trust we established over time, which was further reinforced by last year’s investments. So as we plan the remainder of the year, both in total and by category, we continue to listen closely to our guests to understand how they’re thinking and feeling. And when we talked to our guests-

Christina Hennington: (16:03)
… to understand how they’re thinking and feeling. And when we talk to our guests today, they tell us they want to maintain some of the new habits and routines they formed during the pandemic, including an enhanced focus on the joy of home and the health and well-being of their family.

Christina Hennington: (16:16)
At the same time, there’s a rapidly emerging emphasis on style and mobility as guests feel increasingly safe in public spaces. That trend is playing out in an explosive demand for dresses and cosmetics, as well as luggage in categories based on being active like sporting goods and performance active wear. This reinforces the concept of And, Target can fulfill our guests’ needs as they focus on home and health and when they look to venture out. We can welcome them back into our stores and continue to serve them with the same-day services they’ve recently tried and now love.

Christina Hennington: (16:51)
So after a record-setting first quarter, we’re keeping our foot on the gas based on our guests’ desire to bring rejuvenated life and energy to their homes, celebrate seasonal moments with loved ones and step out in public. I could not be more excited about the ways we’re ready to inspire and energize our guests. Just last week, we launched our latest limited time collection, Hilton Carter for Target. Off to a great start, this collection features live plants, faux greenery and unique plant accessories for experienced and novice gardeners alike. Not to be outdone by their parents, younger kids want to make their spaces their own, and our popular kids’ brand Pillowfort will continue to help them do just that. For its five-year anniversary, Pillowfort is celebrating with hundreds of new items that can grow with them and be used in any area of the house.

Christina Hennington: (17:40)
As our guests begin stepping out, they’re focused on looking and feeling their best. With this rekindled passion for fashion, our guests will be overjoyed with the latest installment of our designer dress collection. Featuring designs by Christopher John Rogers, Alexis and Rixo, This assortment offers more than 70 original and affordable dresses in bold, bright patterns and statements silhouettes. And of course, with our continual focus on inclusivity and celebrating every body, this collection features affordable prices in a range of sizes from extra, extra small to four X.

Christina Hennington: (18:15)
We long focused on making Target a destination for holidays and life events, and we just wrapped up a huge Mother’s Day season. We had solutions for mom across the store from apparel, gifting, beauty, flowers, candy and more. And now we’re gearing up for Father’s Day in June. We’ve got a great assortment of gifts for dad from all in motion attire for golfing, hitting the gym, or just hanging out, to a line of shave, skincare and haircare products from Goodfellow.

Christina Hennington: (18:42)
Of course, June celebrations aren’t exclusive to dad. With so many in-person celebrations canceled last year, we’re ecstatic about our fabulous new assortment for Pride as we celebrate love with our LGBTQIA guests, team members and neighbors.

Christina Hennington: (18:58)
Later in the summer, we know families are excited to celebrate the 4th of July with a long-awaited neighborhood cookout, a road trip out of town, or an intimate backyard barbecue with a few fireworks. With great deals and the perfect owned and national brand assortments, it doesn’t matter if the celebration is big or small, Target is everything you’ll need to fill a cooler, pack a beach bag and fill up with friends, family and fun.

Christina Hennington: (19:23)
And before we know it, it’s time to head back to school, and we’re planning for one of our biggest back to school and college seasons ever. Of course, we’ll have great deals on all the traditional school supplies, but we’ll also have the new normals on the school supply list like hand sanitizer and disinfectant wipes. With local school lists on and our industry-leading fulfillment options, back to school shopping has never been safer or easier. And with a great new apparel offerings from Cat & Jack, Art Class, More Than Magic, Wild Fable, Original Youth and All in Motion, all found only at Target, we’ll have our school-bound guests looking and feeling fresh for that first day of school.

Christina Hennington: (20:05)
Before I close, I want to pause and highlight some of the work I’m most passionate about, and that’s our work on Target’s Reach committee, which we formed last year to achieve lasting systemic change for our black guests, team members and communities. This work aligns with our vision for sustainability at Target and it’s a strong example of how we’re becoming an equitable company, creating change that strengthens our business. Hopefully, you’ve seen our recent announcement that Target is committed to spending more than $2 billion with black-owned businesses by the end of 2025. In addition, we’ve announced a new scholarship program to support students in more than a dozen historically black colleges and universities. And this summer, both in store and online, we are adding more items for our Black Beyond Measure assortment. I’m so proud of these efforts and everything we do to help all families discover the joy of everyday life.

Christina Hennington: (20:59)
I also want to give a quick shout out to our store teams. I recently had a chance to visit stores in the New York city market. And after more than a year, in which most of my meetings have been virtual, it was an incredibly energizing experience. I visited new, small format locations across the city, from Manhattan to Queens, to Brooklyn. Every location was a unique reflection of the local neighborhood, from design to assortment and the team members serving their neighbors. Based on the energy and passion I could feel from these teams, it’s clear why we’re seeing such strong sales in our stores across the country.

Christina Hennington: (21:34)
As the first Chief Growth Officer at Target, I couldn’t be more enthusiastic about the opportunity still ahead of us. As you saw throughout 2020, and now in 2021, we have a long runway to continue investing in and growing our core business. At the same time, we’ll continue to develop innovation pipelines and explore new initiatives, maintaining a balance between fundamentals and execution, and the exploration of new opportunities. As we plan for future growth, we’ll continue to listen to our guests and apply those insights to prioritize our work. With this guest-first approach, we’re confident we can continue to build relevance and market share both today and over time. With that, I’ll turn the call over to John.

John: (22:18)
Thanks, Christina. At our financial community meeting earlier this year, we detailed how last year’s $15 billion in sales growth was more than we grew over the prior 11 years. And as you’ve seen today, trends are not slowing down, as we added another four and a half billion dollars of sales in the first quarter. Given this continued rapid growth, any opportunities still ahead of us, the operations team is focused on building capacity and enhancing processes to create and enable Target’s continued growth.

John: (22:45)
That work starts in our supply chain where we’ve outlined our plans to add four new regional distribution centers by the end of 2022, with the first two buildings slated to open later this year. These new buildings, located in Chicago and New Jersey, are set to go live in the next several months, creating additional capacity for the network in total, while enhancing service levels in high volume markets that continue to grow. More specifically, once these buildings are operating at scale, they’ll meaningfully shorten lead times to nearby stores, improving in-stock levels while reducing the need for safety stock in those locations.

John: (23:17)
Beyond the capacity we’re adding with these new buildings, we’re also investing in updated fixtures to create additional capacity across our current network. These changes are highly capital-efficient, involving a small amount of capital to open up a substantial amount of incremental capacity within the network, equivalent to the addition of about one and a half new distribution centers. And as we told you at our meeting in March, we’re pleased with the initial results from our new sortation center in Minneapolis. As a result, we have plans to build up to five more of these facilities in 2021, with additional openings planned for 2022 and beyond. We’re opening these centers, which are smaller than an average store, in markets with a high concentration of local package delivery. They’re designed to receive and sort packages from a large group of surrounding stores multiple times a day, which allows for more optimized granular sortation. This precision reduces costs for our delivery partners, meaningfully reducing what we pay for delivery. In addition, these facilities eliminate the need for sortation at the stores they serve while freeing up packing capacity at those same locations.

John: (24:15)
Sort centers have long been on our fulfillment roadmap, which we’ve built through internal development along with small acquisitions. In these facilities, we optimize the selection of delivery partners by applying technology from Grand Junction, which we acquired in 2017. And we optimize sortation to minimize costs to increase speed by applying technology we acquired from Deliv in 2020. In addition, beginning in the first quarter, our Minneapolis sort center began testing package delivery using Shipt, another 2017 acquisition, to add capacity, reduce costs and enable more flexibility, which will benefit our rapidly growing ship from store capability over time.

John: (24:51)
Within our store network, we’ve begun ramping up our remodel program following the pause we implemented last year. We have just over 30 full remodels slated for completion in the second quarter and more than 100 planned for the back half of the year. Based on past experience, we expect these remodeled stores will generate an incremental two to 4% sales growth in the year following completion, with another 2% incremental growth in the second year. Beyond the direct impact on sales, these transformations create an ideal platform for all of the merchandise innovations and service enhancements that will launch over time.

John: (25:24)
In addition to full store remodels, we’re planning other store investments this year, including more than 100 Ulta shopping shops slated to launch in the back half of the year, as well as our enhanced Apple layout in electronics in select stores across the country.

John: (25:37)
Among our store services, we’ve long known that our same-day fulfillment options would be popular with our guests, but their growth over the last few years has been far above our expectations. This is the most evident in our drive-up service where first quarter sales volume was nearly 21 times higher than it was two years ago, amounting to nearly $1.3 billion of incremental sales volume over that period.

John: (25:59)
In the face of this incredible growth, there are emerging opportunities in high-volume locations to invest in capacity and efficiency in support of our same-day services. Specifically in more than 100 locations this year, we’re investing in small projects to optimize the front-ends of these buildings, freeing up additional capacity for continued same-day growth while making the layout more efficient and safer for the team.

John: (26:21)
We also continue to enhance the assortments available for all three same-day services, adding more perishable food to our pickup and drive-up services and more general merchandise like apparel to the assortment available through Shipt. And we just announced that in the second quarter, we’ll have adult beverages available through pickup and or drive up in more than 1200 stores and available for same-day delivery in more than 600 stores across the country.

John: (26:44)
Beyond activity in existing stores, we’re expanding our new store opening plans to more than 30 additional locations across the country this year, as we continue to find compelling opportunities in urban and dense suburban markets and on our near college campuses. In recent years, these custom formats have typically been less than 50,000 square feet. However, given local real estate conditions in dense suburban markets, we’re also finding compelling opportunities to open somewhat bigger stores between 50 and 100,000 square feet, which weren’t available in the past. As a group, these new stores are generating higher than average sales productivity, above average gross margin rates and strong financial returns. And we see a very long runway to open more of them overtime.

John: (27:24)
And finally, after store comp growth of 18% in the first quarter, driven almost entirely by traffic, we’re confident that we’re already benefiting from a differentiated service model in our stores. But that’s a lead we can’t take for granted, so we’re continually looking for ways to get even better. So this year, our store teams are rolling out an enhanced service model focused on consistency of every interaction to ensure that our guests will always feel welcomed and appreciated. And if they need help, there will be team members who can find solutions to enhance their experience. This new engagement model is strongly connected to our company purpose, culture and values, and we’re supporting it with enhanced training and tools across the chain. It’s designed not to be a one-and-done effort, but a sustainable model that’s integrated with our operational goals, not something separate that’s added on to everyday tasks.

John: (28:11)
So as I turn it over to Michael, I want to, once again, thank the entire team for the incredible things you’ve already done and your passion to continually raise the bar. This year, I’m celebrating my 25th year at Target so you might be tempted to think I’ve seen it all. But when I step back and realize what this team has accomplished in the last year under the most challenging of circumstances, it’s clear that there’s no limit to this team’s potential and there’s no doubt that we have the best team in retail. Now I’ll turn the call over to Michael.

Michael: (28:38)
Thanks, John. When I think about the underlying themes of our recent performance, the most dominant one by far has been the unprecedented growth and share gains we’ve seen over the last five quarters. On the P&L, the leverage resulting from growth has more than offset all of the unique headwinds we faced over this challenging period, resulting in really strong performance. Target’s total sales grew 23.3% in the first quarter, reflecting comp growth of 22.9%. Given last year’s double-digit growth, first quarter sales have expanded more than 37% over the last two years, driven almost entirely by higher comps. Unlike last year when consumers were consolidating trips and shopping less often, this year’s comp growth was driven primarily by a traffic increase of more than 17% combined with a 5% increase in average ticket. As Brian mentioned, store comps were the growth engine this year, while digital was the primary driver in Q1 2020. As such, over the last two years, both our stores and digital channels have expanded their first quarter sales by more than $3 billion. This balance highlights the relevance and complimentary nature of both channels in serving our guests’ needs.

Michael: (29:57)
Our first quarter gross margin rate of 30% was 490 basis points ahead of last year when we faced a number of temporary headwinds, including markdowns and other costs to right-size our apparel inventory. Compared with 2019, this year’s first quarter gross margin rate was about 40 basis points higher, which is notable given that digital sale’s penetration more than doubled in that time, from 7.1% in 2019 to more than 18% this year.

Michael: (30:24)
In terms of the year-over-year gross margin drivers, mix had a positive impact of about 150 basis points, reflecting the dramatic increase in apparel sales and continued strength in our home category. The remaining favorability was driven by core merchandising as we continued to benefit from low promotional and clearance markdown rates. And we annualized last year’s cost to right-size our apparel inventory. The rate impact of the supply chain and digital fulfillment costs was approximately neutral compared to last year as the cost of out-sized digital growth were offset by the benefit of a stronger mix of same-day fulfillment and our ongoing work to control unit costs across our entire suite of digital fulfillment options.

Michael: (31:04)
Our first quarter SG&A expense rate was 18.6% this year, down more than two percentage points from 20.7% a year ago and 20.8% in 2019. In terms of drivers, leverage benefits have more than offset all of the extra costs we’ve absorbed over the last two years, including meaningfully higher pay and benefits for our team and other investments to protect the health and safety of our team and guests.

Michael: (31:28)
While DNA expenses have grown in each of the last two years, this year’s first quarter DNA expense rate was about 40 basis points lower than a year ago and about 80 basis points lower than 2019. Altogether, our first quarter operating margin rate increased an astounding 7.4 percentage points compared with a year ago to an unprecedented 9.8% this year, from a temporary low 2.4% rate a year ago. However, even compared to a very healthy 6.4% operating margin rate in the first quarter of 2019, this year’s rate was more than three percentage points higher-

Michael: (32:02)
… rate was more than three percentage points higher. In terms of dollars, first quarter operating income has more than doubled over the last two years. On the bottom line, our business delivered first quarter GAAP EPS of $4.17, up more than 600% from a year ago and well over double our 2019 GAAP EPS. On the adjusted EPS line, which excluded the gain from the sale of our Dermstore business, we earned $3.69 this year. More than 500% higher than a year ago, and well over double our 2019 adjusted EPS.

Michael: (32:36)
As you know, our capital deployment priorities remain the same as they’ve been for decades. We first look to fully invest in our business in projects that meet our strategic and financial criteria. Second, we return cash through our quarterly dividend, which we’ve maintained every quarter as a public company and grown every year since 1971. And finally, we return excess cash over time through share repurchases within the limits of our middle A debt ratings.

Michael: (33:03)
In the first quarter, we invested just over half a billion dollars in capital expenditures to support our business. We continue to expect our full-year cap ex will be approximately $4 billion, but the bulk of those expenditures will be more back-loaded in the year given the timing of this year’s projects. We paid dividends of $340 million in the first quarter, up slightly from a year ago as growth in the per share dividend was partially offset by a decline in share count. And finally, we resumed share repurchases in the first quarter, following a temporary pause in 2020, and deployed about $1.2 billion to retire 6.1 million shares at an average share price of just under $191. And in February, we completed the sale of our Dermstore business, which contributed just over $350 million to our first quarter cash flow.

Michael: (33:50)
Altogether, we ended the quarter with about $7.8 billion of cash and cash equivalents on our balance sheet. This was down about $700 million from the beginning of the quarter, but still well above where we expect to operate over time. With this cash, we’ll be funding approximately $3.5 billion of additional cap ex in 2021 and we’ll be recommending a robust increase in our quarterly dividends to the board later this year. Beyond these uses, we should have ample capacity for continued share repurchases, and we’ll continue to govern the magnitude and pace of repurchases in support of our goal to maintain our middle A credit ratings. And, given where we are today, it will likely be a multi-year journey before our debt metrics move fully back to where they’ve been over time.

Michael: (34:33)
Now I’d like to turn briefly to our return on invested capital, which reflects both our operating results and the investments we’ve made to generate them. In the first quarter, our trailing 12 month after tax ROIC moved up to 30.7%, which is well over double the 13.4% we reported a year ago. While we’ve indicated that this measure will likely be volatile near term and could revert to a very healthy number, near 20% over time, the fact that our business has generated such a high after tax return over the last 12 months is a testament both to the strength of our model and outstanding execution by our team.

Michael: (35:14)
Now, let me turn to our sales outlook. We learned a lot in the first quarter, and notably, got our first look at how our business is successfully comping the comp with impressive growth on top of last year’s strong surge in sales. Also, and importantly, we’ve continued to gain market share on top of last year’s dramatic share gains. Based on these results, we’re now planning for our business to deliver a mid to high single digit comp increase in the second quarter. This expectation is in line with the two year growth rates we saw in the first quarter. And, while we only have a couple of weeks in the quarter behind us, the results we’ve seen so far this month are consistent with this outlook.

Michael: (35:52)
The range for second quarter operating income remains wide, but should remain strong, far ahead of our 2019 rate of 7.2%, but perhaps not fully as high as last year’s unprecedented rate of 10%. In terms of the specific puts and takes in the quarter, we’ll be comping over last year’s reversal of the return reserve estimate, which added about $110 million to last year’s operating income. In addition, this year we’re making purposeful investments in store labor hours to ensure we deliver outstanding service and stronger in stocks than a year ago, when sales grew far beyond our expectations. Of course, we’ll continue to benefit from meaningful sales leverage given that we’re planning for healthy growth on top of last year’s record-setting increase. Putting that all together, we expect to see continued strong performance on this line.

Michael: (36:43)
In the back half of the year, the range of possibilities for comp growth is also quite wide and we’ll gain more insights as the year progresses. As of today, based on our recent results and confidence going forward, we expect to see positive, single digit comps in the back half of the year on top of last year’s unprecedented performance. Regarding our full year operating margin rate, following an exceptionally strong first quarter, we have increasing confidence in the consumer and industry backdrop in the back half of the year. As such, the range of outcomes for our 2021 operating margin rate has moved significantly higher. So, despite the anticipated headwind from higher markdown rates following last year’s historically low rates, we believe that our business is positioned to deliver a full year operating margin rate that’s well over last year’s rate of 7%. More specifically, we believe this year’s operating margin rate could reach 8% or perhaps a little higher. We’ll continue to refine our view throughout the year.

Michael: (37:41)
As the team looks ahead to the rest of the year, they’re focused on staying agile in what continues to be a volatile environment. Rather than placing all of their bets on a single forecast number, they’re focused on contingency planning, creating flexibility that will allow us to react to unexpected changes and importantly, take advantage of opportunity when we see it. We’re also excited about the investment still ahead of us and the growth they’ll create. Hundreds more remodels, dozens of new stores, new Alta and Apple shopping environments and supply chain investments to support both replenishment and fulfillment. Given the performance we’re seeing today, which is the product of the investments we’ve made over the last few years, we’re eagerly leaning into future opportunities to enable more profitable, high return growth over time.

Michael: (38:28)
Before I turn it back over to Brian, I want to add my voice in thanks to the team. The value our team members are creating for our business, communities, shareholders, and each other goes far beyond what we can measure on a P&L. Thanks for making Target an even stronger company on behalf of all of our stakeholders. Brian?

Brian Cornell: (38:48)
Before we move here to the questions, I want to pause and acknowledge again, the role our team played in the outstanding results we delivered this quarter. I’m thankful for their continued focus on our guests, focus on operational excellence and passion for our brand. I also want to acknowledge the challenges facing our India headquarter team, along with our team members who have family there, given the recent surge in COVID-19 cases. We have been carefully monitoring conditions on the ground and providing extra support to our team during this difficult time to ensure they can take care of themselves and their families. We’ve also funded $500, 000 donation to UNICEF to increase access to oxygen treatment in hospitals across the country and bring testing resources to the hardest hit communities. We’re hopeful that conditions there will continue to improve.

Brian Cornell: (39:45)
So now, as we get ready to move to your questions, I want to underscore the confidence you’ve heard throughout our remarks today. Coming off an unbelievable year in 2020, we had a lot of confidence as we entered 2021, but our first quarter results came in far ahead of our baseline expectations. With a macro and consumer backdrop that’s been surprisingly positive, we’ve seen remarkable momentum in our performance, even as we started a comp over the period of peak increases a year ago. The flexibility of our category mix and fulfillment options combined with an agile, energetic and engaged team, continue to resonate with our guests, driving double digit traffic growth and an increase in average tickets in the first quarter. But as you’ve often heard me say, we shouldn’t confuse performance with potential.

Brian Cornell: (40:39)
So, even after more than a year unprecedented growth, we’re staying focused and leaning into the opportunities ahead of us, making investments to build on an already strong foundation. With these investments, I’m confident that our business model and outstanding team will continue to raise the bar on an already best in class retail experience resulting in even stronger loyalty and guest engagement over time. With that, we’ll turn to Q and A. Christina, John, Michael, and I will be happy to take your questions.

Speaker 2: (41:16)
Thank you. We will now begin the question and answer session. To ask a question, please press star followed by one. To withdraw your request, press star two. One moment for the first question.

Speaker 2: (41:39)
Our first question is from Bob [Drooble 00:48:03] with Guggenheim. You may go ahead.

Bob Drooble: (41:48)
Good morning. Congratulations.

Brian Cornell: (41:52)
Bob, thank you.

Bob Drooble: (41:54)
Great job, Brian. The question that I have is when you look at the mix of, especially on the apparel side, can you talk about any new brands that you’re excited about? You’ve done a great job with the private brand piece, and I think as you move through the year, any expectations that you have, just on that and mix and some of the margin implications around that category would be great. Thank you.

Brian Cornell: (42:20)
Well, Bob, good morning. Why don’t I let Christina spend some time talking about what we’re seeing with categories, some of the highlights between our own brands and national brands. Obviously, Christina highlighted the fact that, despite our overall robust performance in the quarter, home brands grew by 36%. A record performance for us. So we’re clearly seeing great performance in both our own brands and national brands, but Christina, why don’t you build on some of what we’re seeing in the different categories.

Christina: (42:49)
Absolutely. And good morning, Bob. Thanks for the question. As Brian was just sharing, we really are excited about the strengths across the board. Apparel was certainly a stand out in this quarter with growing over 60%. And that came from a range of brands in every segment of the business. But the reality is the three trends that I talked about in my prepared remarks are benefiting our multi-category approach across the board, joy at home, and the opportunity to celebrate everything that brings the guests to their home, eating, being with their families and the investments that they’ve made over time in their homes, health and wellbeing, the opportunity that our guests are taking to invest in proactive health care, and fitness at home and active wear.

Christina: (43:37)
And then the newer and more emerging trend is really style and mobility. As guests are going out, they are looking for a fresh look. So our newest collection of dresses by Christopher John Rogers, Alexis and Rixo, couldn’t have been more time to really help guests look their best in what they’re wearing and it’s certainly also across their beauty trends.

Bob Drooble: (44:07)
Thank you.

Brian Cornell: (44:09)
Bob, thank you.

Speaker 2: (44:12)
And the next question is from Paul Trussell with Deutsche Bank. You may go ahead.

Paul Trussell: (44:19)
Good morning and outstanding results. Congratulations to the team. I guess my question is on first same-day services, which obviously continues to really showcase robust growth. I’m just wondering if you can talk a little bit more about how the business has evolved, what are the additional learnings and what are the actions that have been taken to really improve efficiency and profitability of that particular business and service?

Brian Cornell: (44:53)
So, Paul, thanks again for joining us this morning. Why don’t we let John Mulligan talk about some of the progress we’ve made from a same-day fulfillment standpoint?

John Mulligan: (45:01)
Good morning Paul. It’s good to talk to you. As you know well, we’ve talked about stores as hubs now for going on four years. And we have always said, we liked it for a couple of reasons. One, great guest service and two, better economics. same-day services are that on steroids. They have much better economics than shipping something to someone’s home because, as we’ve talked about the shipping expenses is the biggest part of delivering something to someone’s home. So if we take that out of the equation, then we end up with economics that are much closer to the store transaction. The thing we love about all of the same-day services, pick up, drive up and shipped, all of them continue to go faster than our overall digital growth. And we continue to find ways to improve them, as you said.

John Mulligan: (45:48)
Part of that is investing in technology for our teams, improving their sort paths, improving how they pick. We’ve done a great deal of process work to break things apart, to make it simpler for our teams to execute. We’ve done things to help them find items in the store so that we don’t end up with what we call INFs or items not found. And then we continue to invest in helping them physically. And that’s a big focus for us this year and will be over the next couple of years. In the case of drive up, which is, we’ve talked about a couple of times, Brian talked about it and I talked about it, has been our fastest growing same-day service since basically since we started it. It also has our highest MPS score so guests love it. We let you decide when you want to come, we don’t force you into a time slot and then our team brings it out to you in two minutes or less. So our guests absolutely love that. And you’ll see us invest in making that easier for our team, building capacity on the front end of the store.

John Mulligan: (46:43)
Over the past year, we’ve rolled out adding temperature controlled products to drive up. And so you’ll see us add refrigeration and freezers to the front end of the store. All behind the walls so that our guests don’t see that, but making it much easier for our teams to execute and then much safer. We’ll make it much easier for them to walk out to cars, protect them from the environment a little bit. So all of that experience continues to improve as well. So every year our team comes up with multiple ways to continue to improve the service, first and foremost for the guests, and then on the backend improve things for our teams so they can execute it easier as we continue to grow. So we see a lot more opportunity for us, and as I said, that will be a big part of our capital investment over the next several years.

Brian Cornell: (47:25)
John, the only thing I might add is, as we saw our guests turn to same-day services during the pandemic, using pickup and drive up and ship, we expect those services to be very sticky over time. And certainly, I think we’ve matured the awareness and the use of those same-day services by two, three, if not four years. Certainly if we go into the back half of the year and during the holiday season, I think we’re going to continue to see our guests turn to shipped and drive up and pick up. It’s just an easy and convenient way to shop at Target.

Paul: (48:00)
Thank you for the caller. Just quick followup from Michael.

Paul: (48:03)
Thank you for the color. Just a quick followup for Michael, obviously, you’re really showcasing a lot of confidence in the trajectory of the business, given the outlook provided for the balance of the year. Maybe just a little bit more detail on how we should think about gross margins and SG and A for what’s clearly going to be a really healthy operating margin rate in 2Q and the second half.

Michael: (48:29)
Yeah, sure, Paul. Thanks for the question. I touched on this a bit in my remarks, but if I had to summarize our profit story, it goes back to the scale benefits we see when we have growth, and our plan for the back part of the year is to see growth on top of some of the strongest quarters in Target’s history last year. So we would expect that to lead to improving profit rates on a year over year basis, and there’s still a wide range of where those numbers might ultimately land. We’ll continue to refine our point of view as the year progresses, but scale is a wonderful thing. We’ve seen impressive growth over last year, and we expect more to come in the balance of this year.

Moderator: (49:04)
Does that conclude your question, sir?

Paul: (49:15)
Yes. Thank you. Best of luck.

Moderator: (49:15)
Thank you.

Michael: (49:17)
Paul, thank you.

Moderator: (49:19)
Thank you. The next question is from Karen Short with Barclays. You may go ahead.

Karen: (49:25)
Hi. Thanks very much, and I’ll add my congratulations to a great quarter. I wanted to just ask a little bit about share gains. Obviously, we know the categories, and you’re gaining share across all categories. But I wanted to see if you could give a little bit more color on share gains by demographic and which demographics you think you’re gaining the most share from. Then I had a followup to that last question that was asked.

Brian: (49:48)
Karen, thanks again for joining us today, and appreciate the question on market share. As you look at our business, and I think you know our Target guest and our Target shopper, we’re appealing to all demographics. We’ve had now well over 30 million guests and shop us every week. Most of America shops at Target, and I think as we look at it, we’re picking up share across all these various cohorts. So it’s not one consumer. It’s all of the guests who are shopping Target, and as they return to our stores, shopping multiple categories. I think that’s the magic behind our performance, is that great combination of an in-store experience, the ease and convenience of digital, but that multi-category portfolio and that unique combination of our own brands and curated national brand. We appeal to a broad group of consumers in different cohorts, and we’re picking up share across all of these different areas.

Karen: (50:51)
Okay, thank you. Then just on inventory growth, obviously, your inventory growth was very strong this quarter, which is impressive, given the freight issues and the port issues, but maybe some color on that growth in general and how you think about the balance of actually wanting more markdowns in 2021 versus 2020 and how we should think about that in the context of gross margin.

Brian: (51:15)
Michael, why don’t you start? Then we can provide some additional color as Christina talks about our inventory positions.

Michael: (51:21)
Sure. Well, first off, Karen, we feel really good about our inventory position heading into the second quarter. You can see we’re up on a year over year basis, and we should be, given the growth in sales that we’ve seen and continue to expect. When it comes to markdowns through the balance of the year, and we’ve talked about this a little bit previously, we were sold through in a lot of seasons last year, and that’s not optimal for us. We don’t want to look at empty shelves at the end of a seasonal set. So with our anticipation for growth in the remainder of this year, we’ll be buying appropriately to that, and hopefully that means we’ve got fuller shelves at the end of a season and with that will come some clearance markdowns. There’ll be a little bit of a drag on markdown rates on a year over year basis, if I had to guess, but I would welcome a little bit of that rate drag, because it means that we’re pulling in stock for the guests throughout the season.

Karen: (52:09)
Great. Thanks very much.

Moderator: (52:12)
Thank you. The next question is from Chris Horvers with JP Morgan. You may go ahead.

Chris: (52:19)
Thanks. Good morning, everybody. So a couple questions on guidance. My first question is in the second quarter, Michael, why couldn’t you reach 10% or at least be close to that? You did a nine eight in 1Q. Sales volumes look to be similar. Is it less rich mixed performance, or perhaps you’re putting in some caution around potential promotions and clearance?

Michael: (52:44)
Sure, Chris. Thanks for the question. Well, we would expect, like I said in my remarks, the second quarter to be far ahead of the two year ago performance, likely not as high as last year, but there’s still a broad range around that outcome. So we’ll see as the quarter plays out exactly where we land. Worth noting and I touched on this as well, there’s some factors unique to the quarter. We’ve got a $110 million headwind from the way our returns reserve calendarizes between Q1 and Q2. The second thing is we’re investing and we’ll continue to invest in the team and in store payroll to make sure we’re staffed and in stock to support the sales we expect to come, and our teams have done just an incredible job this year, providing such great guest experience. We want to make sure we’re investing to continue to support that and to support growth.

Chris: (53:33)
Understood. Then as you think about the gross margin, can you talk about the puts and takes of this year versus 2019? Obviously, you have a higher e-commerce mix, but you would think that sort of the mix of the business by category could be richer. You also have pretty lean inventories against a strong demand backdrop.

Michael: (54:01)
Yeah. So maybe I’ll speak to actuals and unpack the first quarter just a little bit versus two years ago. If you look at kind of versus our 2019 performance, we saw markdown efficiency, and we’ve talked about that, lower levels of promotional and clearance markdown rates in 2019. On a two-year basis, the mix is actually about 40 basis points of a drag in the first quarter, and also on a two-year basis, you can see digital and supply chain pressure of a shade over a point, given the growth in the digital business and the impact that that has to raise. So those are familiar drivers we’ve talked about over time. Where those drivers land for the balance of the year will dictate where margin ultimately falls.

Chris: (54:44)
Great. Thanks very much. Have a great spring.

Michael: (54:45)

Brian: (54:46)
Thanks, Chris.

Moderator: (54:48)
Thank you. The next question is from Scott Mushkin with R5 Capital. You may go ahead.

Scott: (54:55)
Hey, guys, thanks for taking my questions. I wanted to go into labor. Brian, I heard your comments today on CNBC about that you’re not really having a struggle getting labor. I also heard you guys talk about enhanced service model. So I was wondering if you could talk about whether you guys believe you have a labor advantage and kind of what you’re doing with your labor force to enhance the store experience. Thanks.

Brian: (55:20)
Well, Scott, thanks for joining us. Why don’t I start and then I’ll let John build on my comments? But as I said earlier today, we’ve been investing in our team for many years now, and we took an industry-leading position with our starting minimum wage. We’ve continued to invest over the last year in the health and wellness and safety of our teams. I think that’s allowed us to build even deeper engagement with our teams in stores and our teams in supply chain. So I do think it gives us a competitive advantage, and I think the focus we place on our team, the care of our team, making sure we’re investing in their training, their development, their growth, I think that’s really provided us with a unique experience. I think it’s one of our competitive advantages in the marketplace. John?

John Mulligan: (56:07)
Yeah. Hi, Scott. Just building on what Brian said, basically, I think our thought has always been the best way to staff our stores and our supply chain, frankly, is to limit turnover. So let’s invest in our team, give them a great experience, and you’ve seen us do that for several years now. We’ve invested in wages. We’ve invested in benefits. Just as importantly, we’ve invested in training to help upskill them. Then over the course of the past year and a half or so, we’ve invested in safety very overtly.

John Mulligan: (56:34)
So as Brian said, engagement is very high. Turnover is down significantly relative to 2019. So we feel really good about where our store’s at. As turnover decreases, you get so many benefits, right? We get team members that know their job. We get team members that know their guests that are in their stores, because they’re in there weekly. They can engage with them, and this kind of gets to the service model where the idea is to engage with our guests, make them feel welcomed, and importantly, solve their problem, if they have an issue, solve it in the moment for them.

John Mulligan: (57:04)
So you’ll see us continue to do that. We’re very encouraged by what we see. Our NPS scores across all of our services, including the in-store experience, are up over last year and up over 2019. So we’re just getting started on this journey, but the early results are very encouraging, and I would just finish where Brian did. You’ve heard us say for a long time we have the best team in retail, and we absolutely believe that’s the truth.

Scott: (57:28)
That’s great.

Brian: (57:29)
[crosstalk 00:57:29]. John and I had a review just yesterday with our store team leaders to look at turnover and retention rates, and we just continue to see stronger and stronger numbers. Back to the point that John had made, so the operating model changes we’ve made over the last few years, putting experts in place in areas like beauty and technology, those team members are really passionate about the work that they do, and they continue to learn and grow every day. I think that focus on providing training and development opportunities, the expertise that we’re providing in those key categories, that’s going to continue to provide benefits to us over time.

Scott: (58:09)
All right, guys. Thanks very much.

Brian: (58:09)
Thank you.

Moderator: (58:13)
Thank you. The next question is from Kate McShane with Goldman Sachs. You may go ahead.

Kate: (58:19)
Hi. Good morning. Thanks for taking our question. I wondered if I could go back to the digital fulfillment questions that were asked earlier. I think you said costs were neutral, and I wondered is it possible for how you’re fulfilling to turn into a tailwind as you continue to drive more growth towards the same-day services and away from two-day free ship, and then separately, you mentioned the sortation centers and the number you’re opening this year. I wondered if you could talk to just the cost optimization from those sortation centers over the long-term.

Michael: (58:56)
Sure. Thanks for the question, Kate. I can start, and then maybe John can provide more color on the sortation center work that we’re doing. We didn’t see pressure on the supply chain and digital lines this quarter. That’s due in part to the just incredible strength in our store business with stores up 18% on a year over year basis. I get excited by the efficiency improvements I see us continue to make in our digital experience. John talked to some of those just a minute ago, but we can do a lot with the volumes that we’ve built over the last two years and some of those same- day services, and all of that volume translates to more efficiency opportunity as we can continue to squeeze down the per unit cost to fulfill.

Michael: (59:39)
But I don’t shy away from growth or from a drag on that line from a growing digital business, and the reason why is when guests lean into digital and we get more omnichannel guests, more guests using drive up, more guests using same day, even if that sale itself comes at a slightly lower rate, it does incredible things for the rest of our P and L, because we see those guests spend more in total, about 30% more for a new drive up or ship guest, and that’s way more important than the little bit of rate drag we’ve seen over time from digital growth. That’s how we continue to think about it.

John Mulligan: (01:00:14)
Yeah, and on the sort centers, Kate, we remain pretty excited about this opportunity, but I would caution you that it’s early days for us still. We always talk about crawl, walk, run. I’d say we’re still firmly in crawl here in Minneapolis. So we see a lot of opportunity in front of us, but the play here is a couple things. First of all, it is about capacity in the store. So if we can sweep packages out of the stores more routinely than once a day, that frees up space, and that frees up space for us to pack additional products in the store. That’s an important thing for us.

John Mulligan: (01:00:47)
Then as we move downstream, the more granular sort is where we start to see potentially cost reductions as we can sort to provide to our carrier partners further downstream and their operations, and like we’d done I want to say about a month ago, using the delivery technology, creating local routes for local packages, we can get very efficient on delivery using Shipt and Shipt drivers. So put all that together, and our guest gets a great experience, we create more capacity, and we have the opportunity to continue to improve what we believe are already advantaged economics because of our stores as hub model. So more to come on all that. It’s early days, but we remain pretty optimistic on all three of those fronts.

Kate: (01:01:31)
Thank you.

Brian: (01:01:38)
Operator, we’ve got time for one last question today.

Moderator: (01:01:42)
Thank you. Our last question is from Joe Feldman with Telsey Advisory Group. You may go ahead.

Joe: (01:01:49)
Great. Thanks, guys for taking the question. Wanted to ask you, you touched on it a little bit, I think, Christina, in the prepared remarks about back to school and being excited. Assuming we do have a more normal back to school and with this child tax credit coming, are you guys planning the back to school period in the second half any differently this year in terms of marketing or inventory levels maybe that you could share a little bit with us?

Christina: (01:02:22)
Yeah, Joe, I’d be happy to talk about that. So we’re very excited about what these life moments afford us in the back half. The opportunity for a little more “normalcy,” it really creates opportunities for us to be relevant with our guests in many different ways. So you think about back to school, it’s a huge moment where the convenience of our assortment across a multi-category portfolio is already a preferred destination. But then you think about how that leads into opportunities in Halloween and Thanksgiving and the holidays, opportunities for our families to be together and celebrate, oftentimes for the first time in almost two years. So this is where the power of our assortment and the gifting opportunities, the value equation that we offer, and the resonance with our brand really shine. So that means we are very excited about what the fall [inaudible 01:03:16].

Brian: (01:03:17)
So Joe, thanks for that final question. That’s a great place for us to wrap up. Hopefully for all of you, you recognize the confidence we have in our business as we go forward, the execution that we’re seeing across all of our different functions, and the way we’re focused on serving the guests. So I appreciate everyone joining us today, and operator, that concludes our first quarter earnings call. So thanks again for joining us.

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