Well, good morning, everyone, and welcome to Target's 2022 Financial Community Meeting. I'd like to start by welcoming the investors and others who are attending this meeting remotely this morning. And for the first time in 3 years, it's great to welcome everyone who's here with us in person in New York. Before I turn it over to Brian, I have a couple of important disclosures. First, any forward-looking statements that we make this morning are subject to risks and uncertainties, the most important of which are described in our SEC filings. And second, in today's remarks, we refer to non-GAAP financial measures, including adjusted earnings per share. Reconciliations of all non-GAAP measures to the most comparable -- directly comparable GAAP measure are included in our financial press releases and SEC filings, which are posted on our Investor Relations website. With that, I'll turn it over to Brian to begin the meeting. [Presentation]

Good morning. It's great to be back here in New York for our first live event since the start of the pandemic. I can tell you, our entire team has been looking forward to seeing you in person. It's been a long couple of years. But I also have to acknowledge the continued uncertainty that surrounds our world, which is only being magnified by the growing conflict between Russia and the citizens of Ukraine. It serves as another reminder of our continued need to support our teams, our guests, our communities as we all navigate these very challenging times. It's been 5 years since I stood in front of many of you, the head of then a $70 billion company. I was a little nervous as I laid out a bold new company strategy. Today, I stand in front of you as the head of a $106 billion growth company with a long list of proof points that our strategy is working. We've delivered 19 consecutive quarters of comp growth: 11 quarters of comp growth before the pandemic, 8 quarters of comp growth since the pandemic. We've grown because we've accelerated our investments in our team and in our strategy. We've accelerated our growth because our team stepped up in heroic ways, meeting the explosive demands that materialized with the pandemic. 5 years ago, we had 1,800 stores. I announced the plan to add stores and upgrade the stores we had. And I saw jaws drop and our stock price dive for a while. At that time, retail was about closing stores, not opening them. Many of you questioned our approach. Now 5 years later, we have almost 2,000 stores, and we're still remodeling and building new stores. We also know the way we run our stores is the secret…

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

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

Thanks, Brian. This morning, I'm eager to give you a peek behind the curtain to answer the question, what's next for Target? And the short answer is a lot. I'd like to share with you a deeper look into the growth framework we use to drive our strategies forward. With a fortified foundation and the deepening level of trust we've established with our guests, we're continuing to build what's working strategically while making smart choices to launch new initiatives. While I plan to spend most of my time today sharing our specific strategies and the lens through which we view them. Let's first acknowledge what enables the execution of these strategies in the first place: our team, our operations and technology. The investments we've made in these areas will empower everything we'll share today. In fact, they're increasingly becoming differentiated growth drivers in their own rights, and they propel our purpose: to help all families discover the joy of everyday life. And at the center of that purpose, you see our guests. Everything we do should be rooted in a deep understanding of what our guests want, along with empathy to understand what they need. Our culture to care, grow and win together, coupled with our core values of inclusivity, connection and drive, support our purpose. Without them, our purpose statement is just words on the page. It's only when we're aligned in who we are, what we care about and how we drive forward together that our purpose comes to life. Here's a recent example. One of our guests, Nicholas, recently lost his sister to cancer. One of his family's most prized possessions was a photo his sister in an opal-housed picture frame that she gave to him before she passed. One day, the frame fell and shattered. Unable…

Hello, everyone. I'm excited to be here to share a view of Target's growth through our guest' eyes, because as Christina shared, everything we do should be rooted in a deep understanding of what our guests want, along with the empathy to understand what they need and how those needs continue to evolve. In the next few minutes, I want to show you how our commitment to relevance has positioned Target to deliver the most personalized omnichannel experience in retail. In my first year as Chief Marketing and Digital Officer, I've had the privilege of sharing Target's story in many virtual firesides, roundtables and interviews. And the common thread, when I think about all of those times, is that people always ask me how Target stays 3 steps ahead with our guests in these rapidly changing times. And while I am not a huge fan of giving away all the keys to success, I always point to our culture of care and our core value of inclusivity that have us listening and learning from our guests deeply and continuously. When our insights team talks with guests, we don't just ask them questions about Target and their experiences shopping with us. Guests share their hopes with us, their fears and their dreams. They share simply what's going on in their lives. Through these ongoing check-ins, every area of our enterprise has a view of the holistic human experience lived by our guests during the pandemic and what that might mean for Target in the future. We also know from brand research what matters most to guests when they shop and connect with us. Ease and affordability are essential, but our guests are looking for more, too: quality and value, community and connection, inclusivity and feeling seen, what Brian calls the power…

There's a lot of good to see here. But it's not just what the guest sees, it's also about what's happening behind the scenes that makes all guests feel seen. We're partnering with diverse content creators in new ways from production crews to on-site catering in front of and behind the camera. Every part of the marketing ecosystem reflects our forward values. And this is so important. We are walking the walk in terms of our investments. By the end of the year, we're committing 5% of our annual media spend to Black-owned media partners and another 5% to Hispanic-owned media partners. Because equity, opportunity and inclusivity are core to who we are, they show up authentically in our omnichannel experience, and our guests are responding to that. This guest feels seen. In stationery, she feels a sense of belonging and inclusion when she holds a heartfelt message in Braille. And we brought him joy. Let's close with his journey. [Presentation]

So no matter where you look in our omnichannel experience up at the Cat & Jack sign in store or online, the relevant connections we have with our guests are making a positive difference in their lives within our communities and for our business, and we're never going to stop. Now I'm delighted to introduce my friend and team member, John Mulligan.

Well, good morning, everybody. So I'm often asked how Target continues to operate within a challenging and volatile environment, putting growth on top of growth and building trust with our guests quarter after quarter. I could point to our agile supply chain, our hundreds of omnichannel stores, our industry-leading fulfillment capabilities and the operational algorithms that make it all work. But the real key to our continued growth is our global team and all the ways they're using our resources and operations to take care of our guests. In just the last 2 years, they've picked and packed 4x more items for same-day fulfillment, supported double-digit store traffic gains with a safe inspiring environment, opened over 60 new stores, remodeled hundreds more, and moved record levels of inventory to support our growing needs of our guests. Brian touched on how our Target team is showing up for each other and how that spirit of care starts here with our team and then extends to our guests and our communities. Our team is the connection across our business and the pulse of our operation, and I want to acknowledge their impact on how target shows up today and how we'll continue to deliver in the future. The power of our team is always visible in our stores, nearly 2,000 of them in neighborhoods across the country, serving as inspiring shopping destinations and local fulfillment hubs. Although the idea of leveraging stores to fulfill online orders is widely embraced across retail today, we are on our own when we introduced the concept 5 years ago. As a result, we're years ahead of others who just started using physical stores to meet digital demand. We know using stores as hubs would give guests more choice and convenience while giving our operation more flexibility…

The ongoing investments in our supply chain are designed to keep our stores at the center of how we serve our guests. Just as important are the continued investments we make in the physical stores themselves. Since 2017, we've completed top-to-bottom remodels across nearly half our chain, bringing even more inspiration to the store environment while helping our team more effectively support online fulfillment. This year, we'll remodel around 200 stores and keep that pace in the years that follow. And these aren't the same remodels we are rolling out when we started. Each year, our architects and construction crews update our plans to keep raising the bar on retail design. And our guests continue to tell us they like what they see. Following a remodel, traffic gains across the store helped drive an average 2% to 4% sales lift in year 1 and another 1% to 2% lift in year 2. As our full store program continues, we'll also invest in hundreds of smaller projects to support growing in-store partnerships, including Ulta Beauty, Disney and Starbucks, and they make store fulfillment even easier for our team. As we invest in existing -- in our existing store portfolio, we'll continue to open around 30 new stores a year. For the better part of the last decade, our store growth has been driven by small formats. With a more flexible footprint, these stores have enabled us to enter new markets and reach more guests. This year, we'll keep going, opening doors in iconic sites, from the historic streets of Charleston, South Carolina to the buzzing energy of Times Square. At the same time, small isn't always got planned. But our store is now more productive than ever. There are benefits to a bigger box. And given the favorable real estate market,…

Good morning, everyone. One of the best parts about my job is getting to spend time with our team every week in stores across the country. And I hear stories like those we just shared in the video, stories about what Target means to our team. And there's no doubt that our more than 300,000 store team members, who interact with our guests every day, are Target's biggest asset and our single-greatest differentiator. They inspire me as they bring our purpose to life every single day. And I'm excited to talk about them and what they do, including ways that may not show up on the balance sheet. Take Terence, for example. He's a team member in our Fairview Heights, Illinois store who stopped what he was doing to help change a guest's flat tire in our parking lot. Her response, "He's my hero. I'll be looking for him every time I go in that store just to tell him how special he is." Or [ Manu ], a leader in our Maui store, who helped the elderly community in the remote town of Hana. She partnered with a local nonprofit to help them get the essentials they needed when they couldn't make it to the store in person. Our team is there to help our guests every day, handing them clean carts as they walk in our front doors, helping them find that perfect item on the shelf, dropping their bags into their car or shipping orders out the back to their homes. They show up for local communities and each other day in and day out. And that's why when we set out to put our stores at the heart of everything we do, it was clear that the most important investment we could make was in our…

In nearly 2,000 communities across the country, our Target team provides great in-store experience and easy fulfillment options. With same-day services already at scale from coast to coast, we are ready for when guest shopping behavior changed. And as we've seen demand grow, our team is able to support that growth and accelerate our progress to meet guests' needs along the way. In the past year, we've added adult beverage and expanded our assortment for pickup. We built in more personalized features like sending a friend or a family member when plans change, choosing where you'd like your order placed in your car or selecting a backup option if something's out of stock. We even doubled the amount of Drive Up parking spaces in the holiday season so guests could get those last-minute gifts without leaving their cars. Our guests love our same-day services, and they provide great cost savings of nearly 90% per unit compared to shipping from an upstream warehouse. In the year ahead, we'll keep improving Order Pickup and Drive Up offerings with a focus on quality, speed and great service. We'll continue to expand the assortment available, and we'll add the Backup Item functionality to even more categories. In the months since we rolled out this option, our teams are able to substitute the Backup Items 98% of the time. Everything we do at Target is grounded in making our guests' daily lives even easier. We want every Target run to be fast, convenient and rewarding, and that includes the return process. Our teams are building the capability to accept returns from the Drive Up lane with plans to test later this year. So guests will be able to check everything out their shopping list and return a product that wasn't quite right at the same…

Thank you, Mark. I am proud to be here today representing Target's Food & Beverage team because getting to $20 billion in sales last year, delivering double-digit growth on top of 2020's double-digit growth, achieving millions of dollars in market share gains and becoming America's fourth-biggest digital grocer and being named Retailer of the Year by Supermarket News, well, none of that happened by chance. As some of you know, we've been on a journey when it comes to groceries at Target. Food has always played an important role in driving trips and basket size, but we knew we could do so much more in this space. Today, Target is a company that doesn't just sell food. We are a company that celebrates food with a grocery business that's driving trips and basket size and, even more importantly, loyalty. It's become part of the differentiated experience that separates Target from the pack. Now before joining Target's marketing team back in 2013, I spent my entire career working for iconic food and beverage brands. That experience taught me that food and beverage is a business that is deeply personal for consumers, and that's what our team is delivering at Target. Central to our success is the fact that what we're doing is 100% unapologetically Target. That means we're not copying competitors or trying to do something we're not. Instead, we're listening to our guests, and we're leaning into what's special about Target: to provide a better experience at a great value. That's led to amazing results, a deeper sense of loyalty from our guests and the opportunity to do even more. A great example of this is our digital business. It's hard to believe, but just 2 years ago, fresh and frozen order pickup in-store and curbside was just a small…

Thanks, Rick. At the top of the meeting, Brian shared some of the key milestones from the last 5 years. And I'd like to begin my remarks today by highlighting one more, which is the long-term financial algorithm we unveiled during that time. You'll recall that the prior algorithm anticipated low single-digit sales growth, mid-single-digit operating income growth, high single-digit adjusted EPS growth, after tax ROIC in the mid- to high teens. In the 2 years leading up to the pandemic, our business was consistently generating top line performance in line with the algorithm as we saw average sales growth of 3.7% in 2018 and 2019. And on the bottom line during that period, our business grew somewhat ahead of the algorithm with average adjusted EPS growth of 16.7% over those 2 years and an average after-tax ROIC of 15.4%. Since the beginning of 2020, COVID has changed nearly every aspect of consumers' lives, and we've all seen its impact on the retail industry. At Target, our team and durable model navigated these changes incredibly well, advancing our business far ahead of expectations. Simply put, over the last 2 years, our financial performance blew away the prior algorithm from top to bottom. And today, we're a much larger retailer, generating industry-leading returns on capital. As we enter 2020, things remain far from ordinary, but a future beyond this volatile time is taking shape. And given the durable and sustainable model we've built and the ongoing investments we're making, we've updated our financial algorithm, which will define our long-term expectations beginning next year, in 2023, and beyond. This updated algorithm demonstrates our confidence in Target's ability to continue growing on top of the incredible expansion over the last couple of years. Specifically, over time, our updated long-term algorithm anticipates mid-single-digit annual…

We began this meeting talking about our path: 5 years, from $70 billion to $106 billion. We took you through our present, our strengths, our enablers and our culture of care. Now I'd like to talk about our future. We see a growth horizon for years to come. We will continue to invest in our strategies. We'll continue to invest in our capabilities. We'll continue to nurture a team that cares, cares about work that has purpose, cares about work that has meaning. We are growing teams that embrace our commitment to their career growth and development, our commitment to competitive pay and benefits, our commitment to being a premier American brand, our commitment to growing teams that care. Yes, we have the team and we have the strategy. We are 100% focused on the needs of American consumers. We have some of the most innovative and guest-centric capabilities in retail. We have a balance sheet that is the envy of the industry. And we have a record of cash generation you can count on, provide incredible value to our stakeholders. Yes, as we look at the growth horizon in front of us, we see many opportunities. As we move forward, we'll stay focused on helping our guests navigate through continued uncertainty with what's happening in the world around us, the pandemic and the macroeconomic environment. This includes the highest inflation in decades and the gradual loosening of supply chain bottlenecks. We'll stay focused on delivering value and affordability to our guests. We know how to deliver exceptional value and manage profitability. We can protect prices whenever possible. We can offer an unbeatable range of owned and national brands across our portfolio categories. We can bake value into our assortment, and we'll work with our vendor partners from sourcing to…

All right. As we get started, I would ask you to wait for a microphone. Please introduce yourself. While you can see us, however, it's a challenging time seeing you. So I'll look for a show of hands. We've got one right up front.

Chris Horvers, JPMorgan. So my first question, I have 2, is in the long-term sales guide, it seems like you're baking in about a 3.5% to 4% comp. Is that fair? And how are you thinking about the share gains component of that? Because you've gained a lot of share in the past few years. 3.5% to 4% seems like a very sort of normal rate of consumption growth in the economy. So is that -- are you baking in any share gains?

Michael, do you want to start? And then I'll come back and talk about our approach to share.

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

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

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

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

Great. It looks like we've got a question right over here.

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

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

Yes, I'd be happy to. First of all, we have seen a sustained growth over a multiyear period. That's been led across the entirety of the portfolio. We've seen this past year alone double-digit growth in every single one of our key 5 merchandising areas. The other thing is, and Cara talked about this quite a bit, but the depth of engagement of the consumer leading to more trip frequency is what we believe will have continued sustainable growth, let alone all the initiatives we talked about. We're just in the beginning of our rollout of some of these national brand partnerships that are adding meaningful productivity, trip consolidation and opportunity for growth. So it's a paradigm that we've seen proven out over the last 2 years and is continuing to give us the confidence that that's going to drive growth going forward.

Yes. And Michael, I might focus on 4 areas as we sit here today. One, for those of you who have been attending these meetings over the last 3, 4 or 5 years, whether in person or from a virtual standpoint, one, I think the consistency of our strategy is critically important. And I think we've got great alignment across the organization. As Christina mentioned, from a capability standpoint, we're still in some of the early days. As much as we've been talking about remodeling stores, John Mulligan going all the way back to a meeting in 2015, we've touched about half the chain. We've got another thousand stores that we're going to touch going forward. We're very excited about the pipeline of new stores. And as John talked about, various size stores that allow us to maximize share opportunities in these catchments. From a same-day fulfillment standpoint, while we're very excited about the progress we made, Rick and Mark can talk about the potential upside as we think about temperature-controlled products going through Drive Up and pickup. So in so many areas from a own brand standpoint, from a national brand standpoint, rolling out these partnerships that we talked about a lot today, but many of them are still in limited locations. There's tremendous upside there. We think as we continue to build out our circle and our connection with our guests, there's continued upsized opportunities there. So a consistent strategy, capabilities that are still maturing, but I'll come back to the importance of our team and culture and the investments we've been making. And those are only going to strengthen our business model over time. The one point that perhaps we didn't call out specifically that I think is really a hallmark of Target today is we combine that focus on strategy and building capabilities and investing in our team and culture with a team that's focused on execution. And if you look at the results, how we got from $70 billion to $106 billion, yes, the strategy was critically important. And listening to the guests as we formulate that strategy was incredibly valuable. The capability certainly allowed us to accelerate during the pandemic. Those investments in team and culture, they have supported us throughout the pandemic. But this is a team that's been executing every day from a store standpoint, from a digital standpoint, category by category. And Michael, I think our execution will only improve in the out-years, which gives me tremendous confidence in the future growth and market share opportunities we will capture.

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

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

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

Yes, I think that's right there. I mean you hit on what the 2 big drivers are. One is scale. And as we get bigger, there's benefits that flow through the individual store P&L. First of all, they're leveraging all the fixed stuff. That's the easy-peasy part, but everything becomes more efficient. When we go from $40 million to $55 million, we may only add one truck a week to that store or 2 trucks a week. We don't double the number of trucks that a store has to work. So you gain efficiency there in the backroom as you're moving inventory to the front of the store. Things like that just create efficiency. Again, once you're out on the floor and stocking goods, if you're a $40 million or $55 million store, that doesn't change. You're out on the floor. If I put 2 on the shelf or 3 on the shelf, nothing really changes there. There's a marginal amount of incremental work, right? So those are the little things that create additional scale in our hourly payroll, which, of course, is the biggest expense we have. That flows down through the entire P&L. And then, of course, Michael talked about our same-day fulfillment and our ship-to-home fulfillment. We have improved individually each of those paths to the guests. Each one of those services, the cost structure and the mix helps us because the most -- the best NPS scores, the ones our guests like the best are same-day services, which are the most efficient as we've been talking about for a long time. And then you layer on sort centers where we said -- and look, we've had this open for 14 months, just 14 months, and we already said it's way cheaper than what we were already doing. So there's some -- I mean you've seen us do it over the last 5 years, continue to hone processes and improve them, Mark and his team, improving the pathing, improving the pick, improving the prep, improving the pack. That's a lot to say, improving all 3 of those. And we'll do that all over again with sort centers. So so much runway for us to continue to drive efficiency and bring expense out and continue to invest in service on the floor at the store, just a huge opportunity for us.

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

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

Yes. I mean specific to Food & Beverage, we have had a tremendous positive momentum over the past couple of years. We've been able to deliver double-digit growth on top of double-digit growth. We've been able to gain billions of dollars in market share over the past 2 years. And part of those benefits have come with that bigger businesses. Quite frankly, we are more credible in the grocery business. And as a more credible grocer in the grocery business, we have more opportunities to partner with our national brand partners. And so we are in negotiations when products are on allocation or they're limited due to supply chain constraints. Our national partners recognize that Target is a place to grow, and they're looking to us first. And I think that's a change of where we are today than where we've been in previous years. The other thing I would just say when it comes to things like produce, the faster we're moving, the fresher the product, the less the waste. So it helps us not only from a financial perspective, but actually from a guest experience perspective as well.

Let's go to another question. I think we've got one right back here.

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

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

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

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

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

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

Let's see, right up front.

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

Yes. Well, first, let me be clear. We will open up big stores if we find opportunities to open up big stores. No question. We're going to open a 144,000-square-foot store this year. We're excited about that. So we'll keep doing that. We went from big to small, almost exclusively small, 15,000, 20,000, 25,000, maybe 30,000. Those are great sites. We'll continue to do that. We love those, one just a few blocks from here soon. What we're saying there's this middle ground that we haven't really built in the past. And Brian and I have walked in those. We built some 60,000, 70,000, 80,000, even 90,000-square-foot stores, a lot of old Kmarts. Love them. They're big enough that you get the entire Target experience, but the backroom is big enough so that we can do all of our digital fulfillment as well. So we get this great middle ground between the 2. And I think our message today is we can do all of that. Over the past few years, between our properties team, store design, construction, Christina's merchant team because assorting these stores is critical, getting the right assortment for the neighborhood to serve that community is incredibly important. We can do all of that. And so there are these opportunities now out there where you can get into a dense urban neighborhood, a dense suburban neighborhood with a 90,000-square-foot store, great. We'll do that all day long. I think the sort center, the great thing about that is it gets stuff out of the backroom faster. Much like we want to get the inventory on to the front of the store, which Mark's team has done an outstanding job over the last 2 years, we want the boxes out of the backroom. All of that creates capacity in the backroom, more pack stations, more volume, keep it moving, just keep things moving. And that's why the sort centers are so important to that strategy. But we'll do whatever from an opening perspective.

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

Michael?

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

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

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

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

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

We've got a question towards the back.

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

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

Sure. To talk about food, we, as I said before, have a lot of positive momentum on what we're seeing in the food business. We continue to see opportunity to continue to grow as we think about our assortment, and I would say that the real 3 key drivers of the growth that we see in the future. The first is the digital business, which is our same-day services. Industry-leading in general, but particularly relative to our competitive -- our grocery competitive set. It's a real step up, not only from an experience standpoint, from a convenience and ease perspective. I think John mentioned the NPS scores. It's a differentiator relative to other particularly grocers. The second thing that I would say is different about our assortment, which you mentioned and the competition is our owned brands. Good & Gather, only 2 years in and is already over $2 billion in sales. Favorite Day is brand new. It developed during the pandemic and is already off to a really strong start. And then we have Market Pantry, which is a little bit lower price point, but we think will be very relevant during these inflationary times. So we think that assortment of owned brands, when we stack it up to our competitors, they're growing faster than grocery industry private-label brands. We think that's the third -- the second key driver. And then the third, I think, will be seasons, and we talk about that a lot. But we -- whether it's Easter or Valentine's Day, Halloween, Mother's Day or upcoming Easter, that's where we do really, really well. And Easter is coming up, and I think Target's one of the few places where you can get everything you need for the holiday. You can get the eggs for Easter. You can get the candy for Easter. You can get the basket. You can get home decor and you can get the Easter dress. And I think that's a real competitive advantage for us, particularly versus a lot of our grocery competitors.

And from a consumer standpoint, I'll start and I'll let Christina jump in. Let's go back to what we saw in the fourth quarter. And obviously, we saw comps up 9%, but it was driven by great traffic. And we saw a pretty balanced growth between both physical stores and digital. So we're clearly seeing a guest than a consumer who's shopping in both channels. As we sit here today, we're listening very closely to the consumer. And if there's anything, I think, we've learned over the last 2 years, it's just the resiliency we're seeing in the U.S. consumer environment. But specifically, we know consumers are still worried about COVID, yet they're looking for that touch of normal in their lives. And we saw that play out during the Super Bowl. Rick talked about some of the results we delivered. But that consumer and the Target guests, they wanted to be together with friends and family for the first time in a couple of years to enjoy the Super Bowl. We know we've got a consumer who is looking for value. But as Christina noted, they're looking for newness as well. And anything new is exciting and showing up in that basket. There's clearly inflationary concerns that are starting to pop up in the conversation. But it's still a U.S. consumer with a pretty healthy balance sheet. So we're going to have to watch this carefully. We know March, April are going to be important time frames as the consumer overlaps, some stimulus checks and child care. So we're taking a cautious approach to the first quarter. But we continue to see a very resilient consumer who has a solid balance sheet and is balancing that desire for value and concerns with inflation with a desire to find something new and just go back out and experience everyday life.

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

Joe, you know us better than that. We will -- by the end of next week or next month, we will have 6 of them open. We're thinking probably 5 more later this year. And of course, part of this little unknown, same supply chain problems that have impacted our ability to remodel and open new stores, things are slower, permits are slower, everything slower. We'll see. But that's where we're headed. And we think there's an opportunity over the next 4 or 5 years to continue to build at least that pace, perhaps a little bit faster. But when you look at the major or urban areas across the country, lots of opportunity. And I wouldn't say, in the case of many cities, it will not be just one per city. Just the way you navigate some cities and the way they're carved up makes that harder to do. And so the opportunity for us to do several in the city is there for us. But that's all down the road. So you'll see us continue to build into it.

We probably have time for 2 more questions, so let me make sure we get some new hands.

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

Yes. I think the last 2 years are pretty instructive. The rate growth we saw over the last 2 years came from scale benefits. That's a more sustainable version of rate growth. But to be clear, that's not the number in the P&L we're optimizing for. It's profit dollar growth over time. We'd expect to find the fuel to fund the investments to power the top line, and that's kind of the thing that's at the heart of the algorithm. But when we see sustainable rate growth, we'll welcome it just like you saw over the last couple of years.

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

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

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

Christina, I might ask you to start. And Cara, I know you've got a point of view on this topic.

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

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

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