Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation First Quarter Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, May 20, 2015. I would now like to turn the conference over to Mr. John Hulbert, Vice President, Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us on our First Quarter 2015 Earnings Conference Call. On the line with me today are Brian Cornell, Chairman and Chief Executive Officer; John Mulligan, Chief Financial Officer; and Kathee Tesija, Chief Merchandising and Supply Chain Officer. This morning, Brian will discuss our first quarter performance and priorities going forward. Then Kathee will provide insights into our first quarter results across our merchandise category and plans for the second quarter and beyond. And finally, John will provide more detail on our first quarter financial performance and expectations for the second quarter and the remainder of the year. Following their 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 via webcast. Following this conference call, John and I 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. Also, in these remarks, we refer to adjusted earnings per share, which is a non-GAAP financial measure, and return on invested capital, which is a ratio based on GAAP information with the exception of adjustments made to capitalized operating leases. Reconciliations to our GAAP EPS and to our GAAP total rent expense are included in this morning's press release posted on our Investor Relations website. With that, I'll turn it over to Brian for his perspective on our first quarter performance. Brian?

Thanks, John, and good morning to all of you. We're very pleased with our first quarter financial results, which we announced earlier this morning. Our first quarter adjusted EPS of $1.10 is 19.6% higher than last year and $0.05 better than the high end of the range we provided at the beginning of the quarter. Comp sales increased 2.3% in the quarter, a bit ahead of our expectations. This increase was driven by a healthy balance of growth in both traffic and average ticket. First quarter digital sales increased 38% over last year, driven by higher traffic and a substantial increase in conversions. Digital growth contributed 80 basis points to our comp sales increase in the first quarter. While we enjoyed a healthy pace of sales throughout the first quarter, we saw particularly strong results in March as weather warmed across many parts of the country and Easter timing moved Seasonal sales into the month. In April, we were thrilled with the overwhelming demand for items on our collaboration with Lilly Pulitzer, with most of the collection selling out in the first few days. We were disappointed, however, that our digital channels were not able to properly accommodate the surge in traffic at the time of the launch, and the team is working to address root causes and learn from the experience as we prepare for holiday season peak later this year. The first quarter saw a meaningful increase in our gross margin rate as we've cycled over a promotional first quarter 2014, and we benefited from very strong mix of sales in our signature categories this year, both in stores and online. First quarter comp sales in signature categories grew more than twice as fast as our comparable sales overall, and mix in our digital channels was even stronger.…

Thanks, Brian. In the first quarter, we saw encouraging trends across many dimensions of our business, including traffic, sales, merchandise mix, markdown rates, digital channel growth and overall profitability. Within our sales, our results reflect our continued focus on growing signature categories. Beauty had another outstanding quarter and delivered more than a 5% comp, but Apparel and Home were right behind with a mid-4% comp. Given weather trends and Easter timing, Apparel comps peaked in March but were strong throughout the quarter. Among the drivers was swim, where we saw better-than-expected results across the board in women's, men's and kids. In ready-to-wear, we saw particular strength in Merona and our new plus-size brand, Ava & Viv. And while it's small relative to the quarter, the response to the Lilly Pulitzer partnership was the icing on the cake as more than 90% of the Apparel items sold out the first day. Across the rest of our assortment, Food comps were just below the company average, and Hardlines experienced a mid-single-digit comp decline, reflecting a very tough comparison to last year when we saw particularly strong sales from Disney's Frozen, and elevated promotions drove sales in Electronics. As Brian mentioned, first quarter comparable sales were driven by a healthy combination of growth in both traffic and average ticket. Within average ticket, an increase in average retail was partially offset by a decline in units per transaction. This decline in average units was driven by category mix, particularly Apparel, along with channel mix as digital transactions typically have fewer units at higher average retail. Besides channel mix, growth in average retail was driven by a lower level of promotional activity this year and a trend in which our guests are trading up to higher-quality and premium-branded items. We were really pleased with the…

Thanks, Kathee. Our first quarter financial results were stronger than expected, driven by better-than-expected sales performance, particularly in our signature categories. Adjusted EPS of $1.10 was $0.05 above the high end of the guidance range provided at the beginning of the quarter. First quarter diluted EPS from continuing operations of $1.01, about $0.09 lower than adjusted EPS, driven primarily by pretax restructuring cost of $103 million combined with small adjustments for breach-related expenses and a favorable resolution of income tax matters. First quarter GAAP EPS of $0.98 included a $0.03 loss on discontinued Canadian operations compared with a $0.24 loss on Canadian operations in the first quarter of 2014. Our first quarter comparable sales increase of 2.3% was just ahead of the guidance of 2% we provided at the beginning of the quarter. We are pleased with the sales results throughout the quarter, but they were particularly strong in March as weather warmed and Easter timing moved Seasonal sales into the month. Comparable sales growth for March and April combined, which eliminates the effect of the Easter timing, was stronger than we experienced in February. Digital channel sales increased 38% in the first quarter on top of more than 30% growth in the first quarter last year. Digital channels drove about 80 basis points of our first quarter comparable sales increase, in line with our fourth quarter experience. Comparable transactions were up, both in the store and digital channels, accounting for approximately 90 basis points of our comp increase. REDcard penetration of 21.5% was about 110 basis points ahead of last year, in line with our expectations. This growth is faster than our fourth quarter pace and consistent with new account growth in the latter half of 2014. Risk levels on the portfolio continue to run at historically low levels,…

[Operator Instructions] Your first question will come from the line of Oliver Chen with Cowen and Company.

Regarding the comp in the back half, should we think about traffic as the main opportunity? Or would you feel like ticket will also be an opportunity? And as we think about gross margin and your product assortment, how are you balancing the idea of investing in price versus the innovation that you're conducting in your signature categories?

Oliver, good morning, and thanks for joining us today. As we think about the balance of the year, I would ask you to think about 3 important variables, and you saw those come to life in the first quarter. We're clearly focused on driving traffic to our stores and we expect that to be a very important driver of our growth over the balance of the year. But you're also seeing the benefit of our focus on signature categories and the higher ticket that, that generates. But importantly, the third element is the increasingly important contribution we're seeing from our digital and online businesses. So as we go forward, we're going to continue to make sure we're seeing growth in traffic, growth in our signature categories that leads to that gross margin rate improvement we saw in the first quarter and the higher ticket, but importantly, the ongoing contribution of our online channel.

Brian, you've been very agile with strategic decisions around the online and digital business. As we look forward to back-to-school and holiday, are there any key pointers in terms of the strategies you're undertaking, particularly as mobile and shipping continue to be hot topics?

Oliver, you've heard Kathee talk about some of the key initiatives that came to life in the first quarter, and you're going to continue to see us build off of that over the balance of the year. We've completely rebuilt our app. We're focused on improving our subscription and registry. We're leveraging our stores to ship to our guests. So we're going to continue to build on those initiatives as we go forward and continue to make sure that we're making the investments, both in technology, but importantly, in the supply chain that brings that online business to life for our guests.

And Oliver, if we can go back for a minute to your question on thinking about price versus innovation and how do we balance those. I would just say that we start from the guests, looking at what it is that they expect from any given product category and then how do we build the very best product, which is, depending on what it is, could be a combination of both price and innovation or more heavily leaning on one or the other, depending on what we're talking about. But very much guest-focused to make sure that we're offering them the content that's going to inspire them and resonate. So there's not one-size-fits-all, it's really guest-focused, driven by each category.

Your next question will come from the line of Matt Nemer with Wells Fargo Securities.

My first question is on gross margin. Does the gross margin guidance assume a continued mix shift to the signature categories that you enjoyed this quarter? And is the formula for Q2, in terms of price and quality investments, kind of what we should be thinking going forward, i.e. you were down about 100 last year and you recapture about half according to your guidance. Does that seem like a reasonable formula for Q3 as well?

Well, let me start with the gross margin and the focus for not only the quarter but for many years to come. And we've been very clear about the importance of focusing in on our signature categories. We believe that's our path to differentiating the brand. So you should continue to expect us to focus on building our Style categories. And Kathee and her team are making great progress in Apparel and Home and Beauty. And you saw the comps that those categories produced in the first quarter. We'll continue to focus on Baby and Kids and accelerate our focus on Wellness. So we believe those categories both in store but, importantly, as we demonstrated in Q1, online, where a significant portion of our growth in the digital channel was driven by Apparel and Home. So that is a very favorable impact to mix, both in store and, importantly, as we improve and accelerate our online performance.

Yes, the other thing I'd add, Matt, more tactically, between Q2 and Q3, that's really last year where you saw us transition from focusing on significant promotions that were primarily Hardlines, or some of our lower-margin categories focus to the business, back to back-to-school and then into the holiday season. So as we think about the way Q2 looks versus Q3, where that promotional impact was real in Q2, but it was also we had a significant mix impact because of where we focused those promotions, a little bit less of that as we go into Q3 and Q4, so the delta between last year's margin and this year's margin will change meaningfully. And as Kathee said, we'll continue to invest in price and quality across all of our brands.

That's very helpful. If I could just ask one follow-up on the e-commerce business. I'd love to get your insights perhaps using REDcard data in terms of how much digital growth do you think at this point is incremental, i.e. are these new customers or infrequent customers?

I think, Matt, I would answer it broadly and say that what we see across all guests is when they become engaged in the digital channel, we see incremental growth in that channel and importantly, incremental growth in the stores. So their total engagement with us is very incremental. We pick up incremental sales and, importantly, incremental profitability in both channels.

Your next question will come from the line of Scott Mushkin with Wolfe Research.

I just wanted to get into the topic of traffic. I mean, I think traffic was up, second quarter in a row that it's been up, but I was wondering if you could maybe deep -- dig a little deeper into that. Someone on the grocery space talks about loyal households, and it seems to me when you think about Target, you guys want to build frequency and you want to build these loyal households. How are you thinking about that? Do you measure that? Is that measure improving? Some of our research suggests some of the early things you guys are doing should be building this number, but I wanted to get your take on it.

Yes, I would say that, Scott, it's pretty early in our transformation to say that we see momentum in that measure as it pertains to Food. I will tell you a lot of our growth in transactions is driven by new guests, and that's driven more in the signature categories that we have been talking about. Now we believe that we have an opportunity to drive traffic in Food, and that's why we're in the midst of putting a lot of tests out in front of our guests, both product and presentation, to get that business on track and to make sure that we've got a really compelling point of view for our guests. And then we will measure that over time to make sure that we're making progress. But today, I would say it's more driven by the signature categories that we've highlighted.

Yes, I mean, that was actually where I was going. Not just Food, just on the idea that I think your heavy users were up 25, 30 visits a year. Are you seeing increase in those types of loyal households? It seems to me that might be a key driver here as we go forward to get that frequency up.

Scott, it's certainly something that we're going to continue to monitor and measure over time. It's still very early for us, but that is a measure that we're clearly looking at. We absolutely want to make sure we're building loyalty. We want to build engagement and traffic. We believe our focus on signature categories brings guests back to Target, looking for what's new, what's exciting. And we also want to make sure we complement that with an improved Food assortment because we know Food is critically important to building engagement and driving overall traffic.

Right. Perfect. And I had one other one. We obviously are in the stores quite a bit, and I wanted to get your take, I mean, some of the pushback that we hear from investors is on the store-level execution, staffing levels, in-stock position. I think people wish it'd maybe just be a little bit better. And I was wondering what you think of that. And are there initiatives to kind of improve some of those measures? And where do think you are? Kind of what inning do you think you are in on these areas?

Yes, I think as we would measure that and as we look at the guest feedback that we get, Scott, I would say store execution is very high. Guests are very satisfied with the number of people that we have, their ability to help them. I would say that we have an opportunity on the in-stock side, and we've been working on that collectively, stores and merchandising, as we work through the port situation and getting those back in stock, but also just our everyday basics. And it's one of the reasons why our inventory is elevated, as we've talked about, is that we have been making investments, particularly in essentials category to make sure that we can raise our inventory levels appropriate to be in stock in those categories. So I think that's where we have the most opportunity right now.

And Scott, that's reflected in the key initiatives we've been talking about. As we think about changes we're making in experience to elevate Apparel with mannequins, to restructure our Home layouts, to begin to make changes in Electronics, we want to make sure we provide the guest with a great in-store experience, particularly in those signature categories. But as Kathee just noted, we also need to make sure we're focused on the basics every day, and we need to make sure we've got very high in-stock conditions, particularly in those key consumable categories. So for us, execution at store level is critically important. We believe we have the best team in retail, and our focus now is on elevating the experience in those key signature areas of our store and ensuring that we're improving the in-stock conditions for basic essentials.

Your next question will come from the line of Robby Ohmes with Bank of America Merrill Lynch.

I think maybe for Kathee, the comment you just made to Scott Mushkin about a lot of the growth in transactions being driven by new guests. Can you give us a little more insight to that? Is that a shift in traffic away from frequency and towards new guests? And how significant is that? And is there -- how are you doing it? Is it -- are there some new marketing approaches you're taking to get people into the stores to alert them about the signature categories, et cetera? Just some color on that would be great.

Yes. So this is something that we aim to do all the time and of course, right now, we're comping against some pretty weak numbers post-breach last year, so certainly that's part of it. As we focus on signature categories, I do think that's getting more new guests back into the brands and in a variety of different areas because signature categories cover so much from Beauty to Home, et cetera, to the different Style categories. And I think the way that we're doing it is really what Brian was just talking about: presentations that are really compelling, with products that's very inspirational; and inviting them into the store through our marketing, which resonates with them; and then when they get to the store or online, being able to convert them to a purchase. So it's all of those things that I think are moving the needle.

And Kathee, can you just comment more on the sort of propensity to trade up for the guest? Is it -- is there something changing there? Or is that just easy comparisons?

We've seen this coming for a little bit now. Third quarter was the start of it, continued into fourth quarter and now again in our first quarter. But I think as we're improving quality, as we're stepping up our assortments to be more aspirational, we're seeing the guest really resonate with that product and move. And that's broad across virtually all of our categories, so not just in one segment of our business but really all of them. So I think it's driven by the guest perhaps having a bit more money in their pocket. I think it's the quality that we've put in. They're recognizing those benefits, and they're wanting to be able to trade up.

Robby, the one point I'd emphasize so that we're really clear: this isn't an either/or, it's an and. So we want to make sure we're delivering exceptional value every day on those core essentials and continuing to bring great quality, newness, innovation and value to our guests as they look for these more aspirational items. So it's not a shift in strategy, and it's not an either/or. It's an and, and we've got to make sure that both elements of our strategy include a focus on core essentials and more experiential offerings. And when we bring those together, that is the Target brand promise and experience. That's where we bring "Expect More. Pay Less." to life. So both of those elements are starting to work together, and I think you're seeing the guests respond very positively to it.

Your next question will come from the line of Sean Naughton with Piper Jaffray.

Just, I guess, a regional question. In terms of the comp on a regional basis in the first quarter, did you see any differences in your sales trends in states that are potentially a little more dependent on oil and gas? And then I guess the follow-up there is, can you also address any negative or potentially positive impact on the organization you see in areas that are increasing the minimum wage?

Yes. Let me start with the regional performance trends, and we didn't see any correlation between what you just referred to: changes in the oil and gas industry and an influence on our comps. Obviously, like everyone else, and this happens every single year, weather did impact regional performance. We had some challenging days in the Northeast. We faced the same ice storms that others did in the Southeast and in the Texas market. But overall, we saw very consistent comp performance across signature categories. The growth Kathee talked about was strong across the country in Apparel and Beauty and Home, and we've seen very consistent performance trends and responses from our guests across the country.

For the minimum wage question, no. We haven't seen those types of impacts either.

Okay. And then just secondly, it looks like REDcard, a nice pick-up.

Yes.

Looks like on a sequential basis and year-over-year. Can you just talk about where management expectation is now on this particular product and where we think this could potentially go over the next 2 or 3 years here?

It's a great question, Robby, and I think we're sorting through that. We wanted to get through annualizing past all of last year with the breach and the impact there. We're really pleased that we saw 110 basis points of penetration growth. We're seeing new accounts grow again, roughly split equally between credit and debit. I think as we learn a little bit more here as we [Audio Gap] through this year, we'll figure out where we want to go. We still are very energized by REDcard as a product offering. I think the opportunity for us is to tie that into a more holistic loyalty offering for our guests. We're testing some of that now out east. And you'll see us, as the year goes on, continue to test that; take those learnings and apply it more broadly to loyalty for our guests.

Your next question will come from the line of Greg Melich with Evercore ISI.

I have a couple of questions. I wanted to make sure I understood the SG&A progression a little bit better. I think, John, in the guidance you said we would delever 20 to 30 bps in the second quarter, which if I take your comp guide, suggests it will be up around 5% in dollar terms. Is that -- are we thinking about that right? And what's the real run rate once you get through some of these other timing issues and the breaches on SG&A dollars?

Yes, I think, yes, you're right, and all of that increase is really incentive expense offset by, again, some productivity improvements. I think as the year progresses, we'll continue to see improvements in SG&A. As we said throughout the year, as the year progresses, we'll continue to start to see the savings that we committed to the $2 billion: $500 million of savings this year, about half in COGS, half in SG&A. And SG&A, that will be offset somewhat by investments in technology. So we should continue getting past the noise as the year progresses. We'll continue to see leverage probably similar to what you saw in Q1 as we get through -- into Q3 and Q4.

Okay. Got that. And then, Brian, I think in your prepared discussion, you've mentioned some disappointment on digital execution, particularly around the Lilly launch. Could you give us a little more detail on what's being done to address those issues in terms of how the website actually works or supply chain? Will you ultimately invest more in fulfillment center capacity? Or just some actual actions to try and address that.

Greg, in some ways, you've answered the question for me, and we've been very clear in the fact that we're going to make a $1 billion investment in technology and supply chain to enhance those capabilities, to improve our capabilities, to make sure we're partnering up technology with the ability to provide the product effectively through our supply chain. So the Lilly event, while a sensational event for the brand and we're really proud that we were able to create a Black Friday-type event in the month of April with hundreds and thousands of our guests lining up, waiting for that product. But online, we know we had some missteps. And we're doing a deep dive, we're looking at root causes, and it's going to provide important learning for us as we get ready for the traffic we expect to generate during the holiday season. But we are very committed to putting our capital behind improving technology capabilities and the supply chain requirements necessary to continue to grow that business at the accelerated rates we're delivering right now.

When do you think you'll know the things you need to get done for holiday? Is that something you'll know now? Or is it something to learn in the fall?

Well, this afternoon would be nice, but we are actively tearing apart the learning and, clearly, want to make sure that we have the diagnostics in place as soon as possible, and we're making the necessary adjustments and investments to enhance our overall digital experience. So this afternoon would not be soon enough, and the team has an incredible sense of urgency to ensure that we have the right capabilities so that we're constantly meeting the needs of the guests.

And Greg, I would just add that we're never done with that. So certainly, we're learning from the Lilly event and we will put that into place as soon as possible. But as we're growing at the rate that we are and we're introducing new code all the time, we are never done. So this is an ongoing effort probably until the end of time.

Your next question will come from the line of Peter Benedict with Robert W. Baird.

A couple of questions. First, just on "Made to Matter." Just can you revisit how many brands have been designated with that, what categories you're seeing being most impactful so far, and what you're doing from a marketing standpoint to support them?

Yes. So "Made to Matter" has been a fantastic program for us, Peter. As you know it, we went from about 15 vendors last year and we increased that to about 30, 31 vendors this year, and we're seeing about 25% lift in sales. So the guest is really loving the product that we're offering. It's in a variety of categories. There are certainly Food products, but there is Beauty products. There's OTC. There's Baby. All of them, though, are really driven by a simpler, better-for-you product, whether that's in Food with cleaner labels and organic, or whether that's in Baby, where it's cotton and more natural materials, but really great results. And we marketed it most recently in the past month in what we call the rear seasonal area of our store, where we brought all the products together for the first time and had really fantastic results. There was a marketing campaign that went along with that, that really resonated with the guest and then the in-store presence helped make it easy for them to find when they came to the stores.

Peter, I think the great part of the program is it's just another point of validation that when we understand what the guest is looking for and we deliver the right curated assortment, they respond really well. You know that we have over 25 million guests visit our stores every week. We know that 98% of our guests purchase natural or organic products. Thus, we need to make sure we offer them the products and the selection they're looking for. It doesn't mean that conventional products don't play a very important role going forward, but our guest has voted. We understand the guest better than ever before, and Kathee and her team are just doing a sensational job of curating the right assortment and bringing the guests what they're looking for when they shop at Target.

And that's helpful. Do you think -- is 30 to 31 a good number that you guys think you'll stick with? Do you think you'll add additional vendors to that program over the next 12 months or just maybe rotate out some and keep the number at 30, 31?

I think that's a pretty good number. We're still evaluating the program. It's just -- we launched the new vendors this spring. So we're still analyzing those results. But to Brian's point, the guests will guide that work. The important part about "Made to Matter" is that while these brands might be carried elsewhere, we have exclusive products with meaningful innovation within the program within Target, and that's what's really resonating with the guests. They recognize those brands are at Target, and they love to buy them, but they come looking for those new exclusive, really innovative products. So I think keeping the number at a reasonable amount so that we're sure that we can drive that right innovation that's very much a partnership with us and these suppliers. So I think we're in the hunt with the right number.

Okay. That's how we've definitely seen it in the stores as well. A quick one just on the Food repositioning. What should we -- in terms of the cadence this year, in terms of testing things, what should we be looking at? Is there going to be space allocation changes? Is it going to be just new brands? And once you do decide what you're going to do, is it going to be an early 2016 kind of rollout, something that could impact a lot of that year? Or is it something that would happen kind of later in '16?

Peter, Kathee and I have been talking about this for several months now. We're using 2015 to test and learn. Kathee's talked about key categories within Food that we really think Target should stand for, and we're looking very closely at how we evolve assortment and how we merchandise those categories going forward. But this is not about how fast we make the changes. We want make sure we really have a chance to test, learn, get the feedback from the guest, iterate, so that as we move into 2016 and beyond, we move forward with confidence and with the confidence that the guest has guided us through the changes we're going to make. So we're clearly focused on it. The team is making very good progress, but we're in that test and learn and validate environment right now, and you should expect to see much more unfold as we get into 2016.

The thing that I would add is as we're going through the testing, as Brian mentioned, we're testing many different things, whether that's assortment changes that we're making, presentation changes that we're making, supply chain changes, part of our testing is to try to isolate those tests so that we can get a good read. So there's not going to be one place that you can go and look at what does the new Food innovation look like. We've got it all over the place. And the other thing that I would add is you know that we've just hired Anne Dament to run the Senior Vice President of Grocery, and we're very excited about that. She's been on board now for about a month. Anne brings us 19 years of experience in grocery and CPG. So she's certainly learning and on-boarding into Target and bringing a wealth of knowledge from Grocery, which will also impact what we put forth in terms of tests for the rest of the year. But I think you can look to 2016, as we learn and prove out what's working with the guest, what's resonating. We will start rolling those in 2016, but don't expect a big bang on January 1. To Brian's point, this is really about getting it right and delighting the guests, not moving fast.

Your next question will come from the line of Bob Drbul with Nomura.

I just had a couple of questions. On the gross margin line, did shipping expense at all impact you with the move to $25? And how many REDcard holders are utilizing their cards for free shipping? And how do we think about that as e-commerce continues to grow?

So certainly, shipping expense went up when we moved to $25, but I would tell you not a material impact on the quarter. And net-net, as we've said, as that brings more guests online, they shop our store and so a net positive as far as we're concerned across the lifetime value of those guests. I don't have the actual number of REDcard holders that use free shipping on the site, but I can tell you the penetration of free shipping due to REDcard on the site is very, very high. We -- in general, we have a very high percentage of our shipping that goes out free from the site. We talked about this last year when we shipped to free -- switched to free shipping during the holiday season. And I think that is why, going back to what Brian said, the supply chain investments we make are incredibly important for our guests because they provide speed to market from their perspective, but they're incredibly important for us because they improve the economics of our online business meaningfully.

Got it. And the second question I have is there's a lot of license initiatives that are coming over the next several quarters. When you think about the year-over-year impact on the business overall, are those gross margin-accretive in terms of what they're trying to do? Or will they be lower margin? And just how do we think about that as it relates to mix and the gross margin overall?

Yes, a lot of that depends on the categories. I think the good part about licenses at Target is that our guests respond to them very broadly. So it isn't just a toy or a video game. For us, there's Apparel involved, there's back-to-school products like backpacks and notebooks. So it's a pretty -- they have a pretty healthy margin mix just given the breadth of category, and most of them fall into our signature categories. So we're very excited about the lineup of licenses and the fact that they start this summer and really go all fall.

Your final question will come from the line of Christopher Horvers with JPMorgan.

So 2 quick ones. You usually guided the first quarter gross margin up 40 to 50, so I was curious what came in better versus your expectations? Was it mix? Or was it the level of promotions -- lapping the level of promotions year-over-year? And then I have a follow-up.

Yes, it was mix, is what came in better. I think we see that in 2 ways. First of all, there's just the mix of selling those products, and then when we see strength in Home and Apparel, of course, our sell-throughs go up and so we have less markdowns. And so the positive benefits of mix go on and on.

Yes. I'd only add, Christopher, that again, we saw that mix benefit both in-store and online. So the combination of those 2 channels working together clearly impacts and improves gross margin rate.

Understood. And then so the outlook, I know you mentioned this going forward. So the outlook in the second quarter is predicated on recapturing both of those and then going on further in the year. It's really expectation that the signature categories out-comp more the essential side.

That is certainly core to our strategy as we go forward. And I think what you saw, what we saw in Q1, very solid performance. Kathee and her team did a terrific job of curating the right products, particularly in those signature categories for our guests. Despite some of the port challenges, our supply chain teams did an outstanding job of making sure that we had inventory in place for the guests. I was very pleased with our marketing program. And if you haven't seen the Target Style campaign or some of the things we just did for Avengers, it's spectacular advertising and the guest is responding to it. And our store teams just did a phenomenal job throughout the quarter, despite port challenges and weather challenges, in providing the guest with a good experience, and it added up to really solid results in Q1. So we hope that continues. We're confident it's going to continue throughout the year. But -- and we feel good about the progress, we know we've got a lot of work in front of us, but that combination of strong in-store and online growth in the first quarter gives us a lot of confidence that we're heading in the right direction. So operator, that concludes our call today. I thank everybody for their participation, and we look forward to talking to you next quarter. Thanks.

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