Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation's First Quarter Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Wednesday, May 16, 2012. I would now like to turn the conference over to Mr. Gregg Steinhafel, Chairman, President and Chief Executive Officer. Please go ahead, sir.

Good morning, and welcome to our 2012 First Quarter Earnings Conference Call. On the line with me today are Kathy Tesija, Executive Vice President, Merchandising; and John Mulligan, Executive Vice President and Chief Financial Officer. This morning, I'll provide a high-level summary of our first quarter results and strategic priorities for the year. Then Kathy will discuss category results, guest insights and upcoming initiatives. And finally, John will provide more detail on our first quarter financial performance, along with our outlook for second quarter and full year 2012. Following John's remarks, we'll open the phone lines for a question-and-answer session. As a reminder, we're joined on this conference call by investors and others who are listening to our comments today via webcast. Following this conference call, John Hulbert and John Mulligan will be available throughout the day to answer any follow-up questions you may have. Also 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 SEC filings. Finally, in these remarks, we refer to adjusted earnings per share, which is a non-GAAP financial measure. A reconciliation of our -- to our GAAP results is included in this morning's press release, which is posted on our Investor Relations website. We're very pleased with Target's first quarter financial performance. Adjusted earnings per share, a measure reflecting the performance of our U.S. businesses, increased 11.5% from a year ago as outstanding performance in our U.S. Retail segment more than offset a year-over-year decline in credit card segment profitability. GAAP earnings per share, which includes the impact of our Canadian segment investments and unique tax items, increased 5% over first quarter 2011. In the U.S. Retail segment, our comparable store sales increase of 5.3% is the largest…

Thanks, Gregg. Our first quarter results demonstrate the strength of our Expect More. Pay Less. brand promise. Our low prices, great store experience and broad assortment in Food and Household Essentials drive traffic regardless of the economic environment. In addition, when guests feel comfortable splurging on more discretionary items, we deliver an unbeatable combination of fashion, design and value on a unique assortment of items across Apparel, Home and Hardlines. In the first quarter, both the pace and mix of our sales exceeded our expectations. Early warm weather and appealing spring fashions drove higher-than-expected traffic and sales, particularly in our seasonally sensitive categories. As a result, first quarter comparable store sales in Apparel grew slightly faster than the company average, the best quarterly performance in that category since 2006. Outside apparel, sales in frequency categories like Food, Healthcare and Beauty continue to grow consistently and rapidly as guests respond to Target's unique combination of convenience and value, especially in our remodeled stores. In Hardlines and Home, first quarter results were strongest in gifting and seasonal categories like lawn and patio, Housewares, Toys and Sporting Goods. On our website and mobile platforms, first quarter sales increased but at a slower rate than in our stores. As Gregg described, our focus in the near term is to strengthen the website experience. And while we continue to make meaningful progress, we still have more to do. Traffic to the site remains strong, and conversion and guest satisfaction scores continue to improve. We will continue to implement improvements to create the appropriate foundation for our longer-term multichannel efforts. Consumer research provides insight into the environment that created stronger-than-expected first quarter sales while reinforcing our cautious outlook going forward. In the first quarter, research indicated that consumers were feeling a bit more confident in their…

Thanks, Kathy. This morning, I'll provide more detail on the drivers of our first quarter financial performance, and I'll wrap up by providing our current outlook for the second quarter and our 2012 fiscal year. As you know, last year, we began reporting adjusted earnings per share because it allows all of us to measure the performance of our U.S. businesses, excluding the impact of our Canadian segment investments and unique or onetime items. In the first quarter, adjusted EPS grew 11.5% from $0.99 in 2011 to $1.11 this year. This performance was better than we forecasted going into the quarter and just above the updated range we provided on our March sales release. Performance in both our U.S. segments was outstanding and ahead of our plan for the quarter. On a GAAP basis, we earned $1.04 per share, $0.07 lower than adjusted EPS, reflecting Canadian segment expenses worth $0.08 a share, offset by a $0.01 benefit from the favorable resolution of income tax matters. Our first quarter comparable store sales increase of 5.3% was well above our planned increase of about 4%. These unexpectedly strong sales drove outstanding profitability when compared with both our plan and last year. As Kathy mentioned, consumer sentiment turned somewhat more positive early in the quarter, and we certainly experienced the traffic and sales impact of early warm weather combined with earlier Easter timing. On our sales, we earned a very healthy EBITDA margin rate of 10.3%, favorable to last year and our plan. This performance reflected a modest decline in our gross margin rate as the impact of our remodel program and 5% Rewards was partially offset by favorable sales mix unrelated to our remodel program, combined with gross margin rate improvements within categories. On the SG&A expense line, we gained leverage of…

We're very pleased with our first quarter 2012 financial performance, confident in our strategy, and we're planning our business appropriately for the second quarter and beyond. That concludes today's prepared remarks. Now Kathy, John and I will be happy to respond to your questions.

[Operator Instructions] Your first question comes from the line of Colin McGranahan with Bernstein.

[indiscernible] rewards card, just shy of 12% penetration. It sounds like Kansas City is running 15%, and you’re continuing to see pretty steady increases there. So a couple of questions. Firstly, where do you think the ultimate penetration goes? Would you expect the total company penetration to be up to the 15% range this year, given Kansas City? And is Kansas City still generating the 50%-plus lift of incremental spend, which would suggest the comp lift to the total business is running at about 150 basis points?

So first on penetration. Ultimately, where do we expect penetration to go this year? I think you're probably in the right range for the company by Q4, not on average for the year, obviously, but probably in November and then obviously in December, it comes down a little bit with the sales surge. But in November, that's probably about the right range. And in Kansas City, you're right. We continue to see fantastic performance, penetration growing 300 basis points a year. And the lift there, just like it is in the rest of the country, continues to be in excess of 50% for both credit and the debit product. The only comment I'd make is -- other comment I'd make is the lift in penetration now, driven about 2:1 by debit rather than credit, and that's a reversal from what we saw about a year ago at this time.

Yes, I would just add that over the long term we really don't know -- we're -- how high, high is. We continue to be excited about the performance in Kansas City in the chain, and we believe that there is still a long runway with the growth of this penetration over time. We're going to continue to invest in it. And clearly, guests, really, the ones that get it, love it. And our challenge is continue to get more guests to understand the immediate and powerful benefits that both of these cards provide for them.

That's very helpful. And then just a quick follow-up for Kathy. I know you do a pretty thorough job looking at pricing on a regular basis. Any comments on what you're seeing in the environment, especially in the more consumables area?

I would say that the environment's pretty rational right now. It's always very competitive. And as we head into the summer and getting closer to Back-to-School, I'm sure that, that will heat up, as it does every year. But I would say right now it's pretty rational.

Your next question comes from the line of Daniel Binder with Jefferies.

I had 2 questions, first on the inventory position. Obviously, you had better sales in Q1. I'm assuming maybe that's a little bit why the inventory's down slightly year-over-year. I just wanted to get your thoughts on your ability to flex in Q2. Is there any limiting factors based on your inventory position today? And then secondly, if you could share any web metrics with us that outline some of the progress you've made.

I'll take the first one on the inventory. Our inventory remains in great shape. We have a large base inventory that we can sell into, so we don't believe there's any real -- or any meaningful limitations in our ability to perform in second quarter or even exceed the sales plan that we've laid out for you today.

And the second one, on web metrics. We're very focused on our overall site performance, watching speed on all parts of the site, all pages, as well as our ability to improve search and order fulfillment. And so I'll tell you we've -- we're investing meaningful resources in our multichannel efforts. We're very committed to making improvements. We have seen those metrics improve meaningfully so far this spring. We still have a lot of releases yet to come this spring and summer, and we think that, that will continue to help these metrics improve. So a big focus for us, and you'll see us continue to talk about it as we go throughout the year.

Your next question comes from the line of Deborah Weinswig with Citi.

In terms of the SG&A performance in the quarter, can you just provide a little bit more color in terms of the improvement there on the retail side?

Yes, Deb. I think, first of all, expense has been, like Gregg mentioned, a big part of our performance over the past several years and again this quarter, led by the stores, significant productivity increases in the stores as they continue to deliver great guest experience. I think, on top of that, we saw great expense performance really across the entire company, very disciplined expense growth in all aspects of our business. And the final comment I'd make is, when we see sales surge like this, our variable expenses grow a little bit, don't ramp up as quickly as we see sales ramp up, so we get some benefit from that. You see that on the downside too when sales decelerate quickly. It takes us a little while to get our variable expenses back in line. But overall, really great expense control in the quarter.

Okay. And then can you talk about the improvement in mix and also what you're seeing with regards to private label?

Well, certainly, our Apparel sales this spring helped our mix quite a bit, but I would say owned brands overall have been strong, really, across-the-board. Our consumables and commodity categories, as you know, continue to be very strong. All of our Apparel owned brands have been performing quite well. And in Home, we've seen good results in Room Essentials, which we've talked about before, but also Smith & Hawken and some of our better brands.

We now have 10 owned brands or signature national brands that are -- that do over $1 billion in retail. We continue to invest in our owned brands. We treat them as national brands. We position them as such. And they're a key part of our strategy. So we're -- you're going to see us continue to focus on these very important parts of our merchandising strategy, including, as Kathy mentioned, the relabeling or the rebranding of our Home brand into Threshold later this fall and as we transition into spring and summer of 2013.

Your next question comes from the line of Charles Grom with Deutsche Bank.

Just, John, I was wondering if we could dig into the gross profit margin line a little bit more, if you could kind of put into buckets the mix impact, the impact from 5%, the rate benefits. And then I guess kind of looking ahead, what should we think about for the balance of the year?

Yes, I think, in Q1, I would tell you that more than all of the rate declines, as we said in the comments, came from 5% Rewards and PFresh. And we saw a significant improvement in mix, as Kathy just spoke about, and a little bit of rate good news across all the categories rounded out the balance of that. I think, as we look forward, we would expect to see similar declines driven by both 5% Rewards and PFresh through Q2, Q3 and the year and perhaps a little bit of good news across the categories. We don't plan for mix improvement. That was kind of a bonus this quarter with the good apparel mix. But we'll see some rate improvement across the categories as we go forward, as well.

Okay, great. And then after multiple quarters here of sub-1% traffic, you guys enjoyed a nice uptick here in the first quarter. Why do you think it got better for you guys? And do you think it's sustainable?

Well, as we said in the -- the strong early weather was certainly a portion, but overall, I would just tell you that Target's on its game. We're delivering great value, great overall experience. Our merchandising content is fantastic, it's colorful and bright season. Our stores are delivering great service. We're just doing a lot of things very well in our stores right now, and I think the benefit of that is continued market share gains across all categories and guests that really love the shopping experience at Target. And that's really what we delivered in the first quarter, and that's why I think the traffic levels were up in that 2% range.

Okay, great. And then one last one for John. Just the credit metrics, the monthly ones that you guys report, delinquencies have come in much better here over the past few months. Can you hold our hand a little bit on how we should model the allowance line and bad debt as we cruise through the rest of the year?

Sure. I think, on delinquencies, a lot of what you saw here in Q1 was really seasonal. I think that's been hard to deduce over the past several years as we kind of climbed up and then have come down. But a lot of that improvement is seasonal. Having said that, it was still a little bit better than we would've expected going into the year. I think our expectations are we'll continue to see year-over-year improvement in delinquencies as we go forward here through Q2 and then probably leveling off. Q2 last year was when we really started coming back. The delinquencies in our bad debt expense versus write-offs started to level off. So you'll see that level off getting into Q3 and Q4. I think, on the reserve, right now, we're at about 6.6% of assets, and that's about the range, 6.5%, that we'd intend to stay at for the year. I think if you look at our -- the reserve release in Q1, $35 million, 80% of that was really tied to volume of the asset base coming down, the last 20%, the last $7 million or $8 million, tied to delinquencies. So a little bit of good room in reserve if delinquencies continue, but I don't think anything significant.

Your next question comes from the line of Greg Melich with ISI.

I have 2 questions. First on the comp. The plan you guys have, the 3%, how much of that shift from the 5.3% we just did down to 3% would you say would be traffic versus ticket? And specifically in ticket, that ASP per unit, that actually had a nice pick-up to 2.6%.

Greg, that's hard to say. We don't forecast at that level of specificity, traffic versus ticket. What I would tell you -- as you know, if you step back and look at what we talked about at the beginning of the year, we said -- or 90 days ago, we said 3% or a little bit more and 4% for the quarter. Obviously, Q1 was faster than that, but given that we had a 4% in Q1, the other 3 quarters were bound to be lower, given what our thought was on the year. And that's really what you see here. So I think the 3% for our quarter is -- for Q2 is right on our thinking when we went into the year.

So maybe asked a different way, that 2.6% year-over-year, we were seeing Food or Home CPI decelerate, is it your working assumption that, that will -- that could start to take that number, the 2.6%, that, that would also slow into the second quarter? It wouldn't just be traffic, in other words, but...

Yes, it's possible, but that would be a relatively small impact relative to what's -- all the other variables that are driving our sales at any given time.

Okay. And then second is on CapEx. Can you just update us on what the budget is for this year and sort of where that peaks as we're doing Canada and when it comes down over the next couple of years?

Yes. I think -- sure. This year, we're -- we remain at about $3.3 billion in total: $2.5 billion in the U.S. and $800 million in Canada. We haven't released guidance going out. But I would tell you, for the U.S., that 2.5% range could be plus or minus. Something in between $2 billion and $3 billion is the right range for us to think about in the U.S. Canada, we expect to peak next year, probably somewhere over $1 billion as we get through all the remodel cycles, just given the number of stores we're doing. And we’ve said $10 million to $11 million per store, so somewhere over $1 billion next year, and then Canada easing back significantly post that.

Your next question comes from the line of Robert Carroll with UBS.

One quick question -- or actually, 2 -- in 2 parts going to REDcard. I was wondering, coming out of Q4, and obviously, there's a little bit more noise around the REDcard contribution during Q4 and the holidays, but I think there've been a comment where debit had been lagging a little bit in terms of the initial lift versus what you -- had been seen from credit. So that 50% blended number that you're talking about now, is there any sort of -- I guess, how big is the divergence between those? Or has it kind of normalized where the 2 have come back together during Q1?

Yes, I think what we're seeing now -- well, first, I -- debit has started to grow significantly faster. And as that has happened, we've seen both debit and credit are within noise of each other, above 50% lifts. So both of them above 50%, and the average is right around there as well.

Okay. And then, I guess, now that we have a little bit more data on there, I mean, how does that customer season? And I mean, if the -- is that the year one lift where you're seeing that 50% for new customers? And I mean, if so, when you start looking at year 2, I mean, do they continue to outperform the broader corporate average?

Yes, we see that year one lift increase in total spend, and then they stay at that level of purchasing with us. They stay a very, very engaged guest. And I think that's kind of the point here, is we take a guest, and as Gregg mentioned, regardless of where they were prior to getting a REDcard, we get a sales lift on average of 50%, and they become just a much, much more engaged guest, more trips. And all of that remains in year 2. Obviously, we're just starting to get in here in year 3, but we see similar behavior there as well.

Yes, well, that's one of the things we think is really exciting about the credit and debit products, is the fact that, whether you're a convenience user, you're least engaged, you're visiting us only seasonally or you're one of our VIPs, this card is meaningful -- these cards are meaningful for you, and you're moving up the value chain. So people that are coming very often but spending very little, they love this card. Our best guests, they love these cards -- these products too. So it's exciting that virtually all of our guest demographics understand and realize the power and the value and the benefits of our credit and debit REDcard Rewards program and visit us more often and spend more on the card. So it's really sticky, and it's got -- it's a great loyalty program.

Your next question comes from the line of Mark Wiltamuth with Morgan Stanley.

A question for Kathy. On your survey where you found that consumers kind of peaked on their confidence in February, and then we saw that drop off into March and April, what factors were they citing? Maybe give us some insights on where the consumer's head is right now.

I think the point is just that their confidence peaked in February, but as they were looking forward, and I'm -- gas prices are a part of that and just their budget overall. They were getting a bit more cautious, which is why I said, as we look forward, we are remaining liquid and making sure that our inventories stay in line so that we can adjust, whether that confidence goes back up, like it did in the first quarter. And you can see that even on our base inventory, we can outsell our sales performance by a considerable amount. But if it doesn't and their confidence goes down, we'll be able to keep our inventories in-line and maintain our profitability. So I think it's a combination of things that are just happening in the marketplace that make them more or less nervous at any given point in time.

Have you looked back in time? Did you find that those indexes are more tied to unemployment trends? Or is it just gas prices and more near-term jitters?

I think it's all of those things combined, but certainly, the ones that take money out of their wallet today have a meaningful impact to what they're able to spend on other products. So gas would be one of those.

Okay. And for John, on the credit card segment, first quarter was probably your toughest compare in terms of lapping the largest reserve release. Should we expect that decline in the credit card EBIT to kind of decelerate, moving forward?

Yes, I think that's right, although we still have a very large reserve release of $85 million last year in Q2 and somewhere around $50 million -- $40 million to $50 million, in Q3, so still very large things to annualize against. But your trend is right. The year-over-year performance will improve as we go through the year.

Okay, thank you, and we'll be watching for Canada.

Great.

Sounds good. And we're excited.

Your next question comes from the line of Christopher Horvers with JPMorgan.

Is there a way to think about the weather pull-forward? It's a great debate out there amongst investors. Is it something that is isolated to an April time frame? Or do you think that some of that happens in May as well?

Well, nobody really knows. I think we're all sitting around, trying to figure out how much business was pulled forward, how many weeks did that go post Easter and when we're going to see a more normalized time frame. And I think we're basically there now. I think there's -- I think there were a couple of weeks maybe that bled into May a little bit. But right now, I think that it's safe to assume that the -- that any weather-related factors are essentially behind us.

And then as you think about x that weather shift, do you think you had run, let's say, a 4-ish type comp x the holiday season? Do you think that shifted higher as a result of some of the improvement in macro and merchandising perhaps disruption that you're seeing in some of your competitors?

Perhaps. We ran a little bit stronger than that early in the quarter. It's really hard to say. It's hard to parse those things apart. I think, like I said, when we go back to what we were thinking 90 days ago, we thought we'd run a 4. We ran a 5, so clearly, business was a bit better in Q1. But right now, we're operating about where we thought we'd be when we talked to you guys 90 days ago.

Okay. And then one last question on the timing of the buyback and the flow-through. You bought back a lot of stock this quarter. Was it purchased late in the quarter, and that's why it didn't show up? And was any of it offset by share dilution?

We don't talk much about the timing within the quarter, Chris. I think, anytime we're buying within a quarter, it's not going to have a lot of impact on that quarter just because of the nature of how we calculate average shares in that quarter. And I think our dilution -- any share dilution that occurred would be normal course. We didn't see anything outside what normally happens every year, every quarter as we go along.

Your next question comes from the line of Peter Benedict with Robert Baird.

I just want to follow up on what Chris was asking a little bit there. The -- if I'm right, the fiscal '12 guidance was increased about $0.05 on the earnings front, and I think, versus your initial plan, you beat by more like $0.10, $0.11 if you use the midpoint. So it doesn't sound like you've got really any estimate of a pull-forward impact. But with the sales plan not really changing over the balance of the year, so just incremental conservatism given the macro outlook or just help us why not the full flow-through of the first quarter beat?

Yes, I think, as we thought about our annual outlook, certainly we wanted to reflect the very strong performance we had in Q1. But I think, as we sat back, we also are looking here and saying, "Well, we're through one quarter of the year. You got Q2, Q3, Q4 yet to go." And as Kathy talked about, our view of the macro environment really hasn't changed appreciably in the last 90 days. So while we enjoyed some weather pull-forward and had the right merchandise absolutely in Q1, and you see the benefit of that in our performance, we think that our current outlook is a reasonable outlook for our business given the very strong performance in Q1 but the fact that we've got a lot of wood left to chop here in the year before we get to the end.

That’s great. That makes sense. And then just one follow-up. Your sales comparisons do start to get a bit tougher in June and July. That's when the business really started to pick up last year. The second quarter comp plan of around 3%, is that consistent across the months? Or do you assume some sort of deceleration over the June, July time frame? Or are we getting too specific there?

It's pretty granular, but I think we feel pretty comfortable with all the months relatively consistently as we look across Q2.

Your next question comes from the line of Robbie Ohmes with Bank of America.

Actually, 2 questions for Kathy. The first one, Kathy, just the -- I was hoping you could maybe talk a little bit more about the drivers to keep category gross margins improving, sort of how you're doing that, is it -- if it isn't mix shift that you guys are looking for to keep gross margin going up, so just some commentary on that. And then also, not to corner you, but while I have you, I think I bought 3 or 4 Kindles at your stores literally over the last 12 months, and I was hoping you could maybe give some of us some more insight into the thinking behind taking that out of your stores.

Sure. For the first question, Robbie, in terms of the gross margin, certainly, mix helped us, as I said earlier, with Apparel. And as we grow Apparel, that definitely is positive. Owned brands is another one that's positive, that we continue to grow and intend to for the future, which will help us. In terms of rates and how we're doing that, I think it's a number of things. There's not one single contributor, but it's optimizing our prices across-the-board, whether that's our regular retail, our promotional retails or our clearance. There's a lot of work that we do with that, as well as, as guests are trading up into better brands, there's typically more profit in those brands. So it's a wide mixture of things that are driving it. And certainly, our inventory control helps that as well. In terms of the Kindle, we continually go through an assessment of our assortments, and we felt that this is the appropriate decision for us to make at this time. So we will be phasing out the Kindle products throughout the spring here of 2012, and we will be out by early summer.

Your next question comes from the line of Jeff Klinefelter with Piper Jaffray.

Just a couple of questions, one back on e-commerce. Kathy and/or Gregg, I was just curious if you could talk a little bit more about any sort of category dynamics that are leading you to conclusions about kind of opportunities you have where there've been deficiencies, where you're tracking below your plan or below what you'd expect, given your store penetration in those categories. And how much of the improvement going forward will come from tech investments in the service levels versus just approaching that channel differently from a merchandising standpoint?

Jeff, there's a lot of things that are leading us to decide what it is that we want to -- where we want to make improvements. Some of them are on the category dynamics and how we're selling, but even in categories where sales are fairly robust -- Apparel sales online have been fairly robust -- I still think that there's a lot of improvements that we can make. So a lot of the metrics I talked about earlier are things that affect the whole site, things like speed and search, our order fulfillment. And so we've just done, as a team, a deep assessment of how we think we're performing, where the site is slower, how good our search function is relative to some of our competitors. And that, along with the category dynamics, are driving us to where we think we need to make changes. And I would tell you that it's a combination of investment in technology but also in our process and just how we're going about our business and, certainly, to your point, our approach to multichannel versus a separate channel and how we're looking at the overall strategy by business and how that plays out online, I think, will strengthen our ability to sell product there. But a large investment will happen in technology to make us faster and smoother and easier for the guests to navigate.

Just a couple of follow-ups on that. In terms of the technology investment cycle, at what point do you feel like you'll be kind of through that and, from that point forward, sort of leveraging that new tech investment? And then also in terms of the merchandising staffing, will you maintain separate staffs, separate merchandising groups, going forward for those? Or will you look to more kind of integration between channels, going forward?

I'm not -- I don't know that I can tell you about the tech investment of when we will leverage that. We are investing heavily now and see that we will into the future. It's a key part of our business, not only the product that's sold online but, of course, all of the sales in stores that are influenced by the research that's done online. So it's a key part of our business that we will invest in for a very long time. In terms of the staffing, I don't know that we've made a decision specifically on what will be separate and what will be together, but we work together on setting the strategy for each category. And then we do have separate buying teams today, although they are ever-increasingly working more closely together as the channels kind of merge and complement each other. So I think, in terms of what that looks like, that's something we will assess for a very long time, but I don't see any big changes in the short term. We are adding to that team, that's probably the biggest change, and we have been now for quite some time as it's been growing.

I'd just add: I think, over time, we'll likely end up in some kind of a hybrid of where we are today. We've had separate and distinct teams. We have co-located and done some integrations both in terms of the strategy and the physical placements of our team. And I -- we think over time that we'll continue along those lines, although it's unlikely that everything would be integrated together. So there will be some teams that are co-located and are very, very integrated physically, strategically, and there will be other parts that will remain a little bit more separate, although, as Kathy said, we take one approach to the business, one strategy, and then it's just how we execute that across both the physical and the online space.

That's very helpful. Just one other final question on Canada. In terms of the kind of market research or consumer testing you're doing in that market leading up to your opening, I mean, it seems that you have some opportunities in that market that would certainly be very distinct from the U.S. where you could index potentially very high relative to your average in potentially Apparel and other discretionary categories. Just curious about that process, how you're preparing for those potential differences.

Well, you're right. We do believe that's a whitespace opportunity for us. And we've done a lot of research, a lot of different kinds of research, and there's no one aspect that leads to any one conclusion. We continue to listen and learn and get close to the Canadian consumer. Many of them are very familiar with the brand, either shop in our stores or they are current REDcard product holders, so there's a high familiarity of the Target brand. And they're looking for the Target experience. They really want the full-blown Target brand experience as we come to get Canada. So that, first and foremost, is our -- our priority is to deliver a great Target experience across all categories, great service, great team engagement. And then because there is -- what we believe is some whitespace in Apparel and Home, we're going to go after those businesses, and we'll look to over-index and over -- or invest a little bit more heavily in the space and some of the physical assets so that we can take advantage of what we believe is going to be a great opportunity for us to deliver our Expect More. Pay Less. strategy in those categories. So we would agree with you on that.

Your next question comes from the line of John Zolidis with Buckingham Research.

Two quick questions. I guess one of them is a follow-up on the question about Canada. If you could look back to when you decided initially to go into Canada compared to today, what changes do you see in the competitive environment over that period? And does that at all change your outlook? That's question number one. And then second, can you just give us an update on the cross-shopping of multiple areas within the store for guests who've signed up for the 5% Rewards card? Are the -- is the basket for that customer -- you mentioned it increased. Does it represent all areas of the store? Or is it concentrated in any particular area of the store?

Looking back on Canada at this point in time, we don't see anything that we would do differently. I mean, the -- it's really the Canadian consumer that's going to benefit by our entry. We're -- we hope to become their favorite store as we enter into that. But clearly, all of the Canadian competitors are anticipating our arrival, as well as the Canadian consumers, and so they are improving their value proposition, they're investing in their asset base, they're improving their experience. And ultimately, that is just going to better serve the Canadian market. We hope to launch very successfully and wow them with our content, value proposition, speed of service and all the wonderful things that we do, Target here in the U.S. We look to do that in Canada as well. And ultimately, the Canadians are going to have a far-superior shopping experience across all channels due to our entry. But there really isn't anything that we look back in hindsight and say, "Hey, we would do anything different," at this point in time.

Right. And on the 5% Rewards basket question. We see a basket in the incremental lift that is very, very similar to the baskets of that guest prior to their experience. There's a very, very small mix impacting gross margin, but it is insignificant relative to our gross margin or the performance of the 5% Rewards program.

Thank you. That concludes Target's First Quarter 2012 Earnings Conference Call. Thank you all for your participation.

This does conclude today's conference call. You may now disconnect.