Brian Cornell
Chair and Chief Executive Officer at Target
Thanks, John. And good morning, everyone.
In the second quarter, our team and our business model showed remarkable resilience, in the face of multiple headwinds in the external environment. While these headwinds have led to a temporary slowdown in the pace of our business that doesn't mean our team is standing still. Throughout the Company, our team remains focused on staying agile and flexible, as we continue to serve our guests and listen carefully to them, in this very dynamic environment. And we're fortunate to have a business model that's inherently flexible by design. We offer a balanced multi-category assortment that's focused on our guests wants and needs, allowing us to stay relevant in any environment and to quickly pivot as our guests priorities change. And our unique stores as hub model, a concept we pioneered in the retail industry, allows us to serve our guests quickly, flexibly and reliably on every shopping journey, whether it takes place in a store or on a digital device.
By continuously listening to, learning from and engaging with our guests and then refining our playbook with our insights, we will continue to achieve our purpose of delivering everyday joy for all the families we serve, while reinforcing our strong culture of caring, growing and winning together. As you recall, in the first half of 2022, we were faced with excess inventory, driven by a rapid change in consumer spending patterns. In the face of that challenge, the team took important steps a year-ago, allowing us to quickly adjust our inventory down to the proper level. Those critical decisions have allowed our team to operate efficiently, while focusing on serving our guests. They've enabled the presentation of fresh, seasonally appropriate assortments throughout the year and provided the flexibility to lean in the share opportunities in key seasons like back-to-school and back-to-college. And importantly, last year's inventory actions laid the groundwork for the recovery and profitability we've achieved so far this year.
Our team also played a critical role in our second quarter profit performance. As we began to see softening sales trends early in the quarter, the team in our stores and supply chain responded with speed and agility. Their discipline, along with ongoing efficiency efforts, allowed our profit performance to exceed our original expectations, despite a meaningful shortfall on the topline. More specifically, for the quarter just ended, operating income expanded by more than $800 million compared with a year-ago. And despite the fact, we've experienced more than a percentage point of cumulative profit pressure from higher shrink since 2019, our EPS of $3.86 through the first-half of the year is more than 50% higher than in 2019. While this is encouraging progress, we are confident we'll see further meaningful increases in our profitability over-time.
On the topline, Q2 results were below our expectations, as comparable sales decreased 5.4%. Within the quarter, comp trends softened in the second-half of May into June, before we saw a meaningful recovery in both traffic and comps in July. In the month, we were especially pleased with trends around Independence Day holiday along with Circle Week, which also resulted in the addition of more than 1.5 million new Target Circle members. Consistent with recent industry trends, second quarter comps reflected continued growth in our frequency categories, offset by notable softer results in our more discretionary categories.
Across channels, sales were strongest in our stores, while results in our digital channel were led by continued growth in our Drive-Up service. Consistent with our stores as hub strategy, more than 97% of our second quarter sales were fulfilled by our stores. As we've described for more than a year now, the divergence in sales trends between our frequency and discretionary categories is being driven by multiple cross currents that are affecting the U.S. consumer. These include the impact of inflation in frequency categories like food and beverage and essentials, causing these categories to absorb a much higher portion of consumers' budgets.
In addition, consumers are choosing to increase spending on services, like leisure travel, entertainment and food away-from-home, putting near-term pressure on discretionary products. And finally the rollback of government efforts to support consumers during the pandemic including stimulus payments, enhanced childcare tax credits, and the suspension of student loan payments presents an ongoing headwind that consumers continue to manage. Beyond these factors in the second quarter, many of our store team members faced a negative guest reaction to our Pride assortment. As you know, we have featured a Pride assortment for more than a decade. However, after we launched the assortment this year, members of our team began experiencing threats and aggressive actions that affected their sense of safety and well-being while at work. I want to make it clear, we denounce violence and hate of all kinds, and the safety of our team and our guests is our top priority. So to protect the team in the face of these threatening circumstances, we quickly made changes, including the removal of items that are at the center of the most significant confrontational behavior.
Pride is one of many heritage moments that are important to our guests and our team. And we will continue to support these moments in the future. They are just one part of our commitment to support a diverse team, which helps us serve a diverse set of guests. And as we talk to these guests, they consistently tell us that Target is our happy place, somewhere they can go to escape and recharge. So, as we navigate an ever-changing operating and social environment, we're committed to staying close to our guests and their expectations of Target.
Specific to Pride and heritage months, we're focused on building assortments that are celebratory and joyous with wide-ranging relevance, being mindful of timing, placement and presentation, leading the segmentation, and leveraging our digital experience, and reconsidering the mix of own brands, national brands, and external partners within these assortments. Our goal is to ensure we continue to celebrate moments that are special to our guests, while acknowledging that, every day, for millions of people, they want Target to serve as a refuge in their daily lives.
In addition to these more recent challenges, our team continues to face an unacceptable amount of retail theft and organized retail crime. As you'll hear in more detail from Michael, shrink in the second quarter remain consistent with our expectations, but well above the sustainable level where we expect to operate over time. And unfortunately, safety incidents associated with theft are moving in the wrong direction. During the first five months of this year, our store saw a 120% increase in theft incidents involving violence or threats of violence. As a result, we're continuing to work tirelessly with retail industry groups and community partners to find solutions to promote safety for our store teams and our guests.
Looking ahead, as you'll hear from both Christina and John, our team is focused on moving forward and preparing for the biggest seasons of the year. And given the current consumer and economic backdrop, we've adjusted our guidance for the remainder of the year consistent with a cautious planning approach that has served us so well during the first half of the year. Against this cautious backdrop, our team is laser-focused on delivering newness, quality, and affordability, reinforced by a commitment to retail fundamentals.
Given the rapid growth and the volatility our business has experienced over the last several years, we have an opportunity to refocus our team on four key factors that determine where consumers choose to shop, being reliably in stock; highlighting affordability throughout our assortment, presentation and marketing; leveraging the proximity of our stores to the guests we serve, while ensuring a seamless, differentiated, easy, and inspiring guest experience on every trip, every day. These areas have always been a source of strength, and we want to ensure we continue to differentiate our experience from our competitors.
Within our merchandising, we'll continue to invest in our industry-leading owned brand portfolio, along with the expansion of key national brand partnerships, like Ulta Beauty, Levi's, Apple, and Disney. We'll focus on deepening the relationship with over 100 million Target Circle members and leveraging the power of our Roundel ad business to integrate relevant offers and promotions throughout the fall. And we'll continue to drive awareness of our industry-leading drive-up service and highlight the recent addition of new guest-focused options, including drive-up returns and the ability to have a Starbucks beverage delivered with your order.
Of course, we'll also continue to invest in our physical assets, to position us for continued future growth. But both of these investments are happening in our stores as we add new locations, complete full store remodels, enhance the efficiency of our same-day services, and add new locations for our Ulta Beauty partnership, Disney Store concept, or enhanced Apple experience. In the supply chain, we're continuing to invest in upstream replenishment capabilities, along with the expansion of our network with sortation centers, which deliver meaningful savings while increasing the speed of our last-mile delivery.
So, now, before I turn the call over to Christina, I want to pause and take stock of where our business is today. And I think it's helpful to pull back the lens because 2023 is the fourth year in a row in which the external backdrop has been far different from anything we've ever experienced. Yet today, as a result of our team's consistent efforts to listen, understand, and serve our guests, Target is a much different company than it was four years ago. We have the right strategy, guest relevance, and team to deliver sustainable long-term growth.
Through the first half of 2023, our total revenue of just over $50 billion was about 39% higher than the $36 billion we delivered in 2019. This growth reflects significant increases across our entire business in all five merchandising categories in both our stores and digital channels and in our Roundel ad business. And this growth reflects an increase in guest engagement as measured by the number of visits they're making to Target. And today, despite the challenges we've faced in recent quarters, the number of guest trips through the first half of 2023 was more than 169 million higher, or more than 21% higher than in 2019. Our team delivered this growth during a time of exceptional uncertainty and volatility. I want to end my remarks by acknowledging that accomplishment.
I also want to recognize the team members in our stores and distribution centers, for the way they've quickly responded to the recent and unexpected slowdown in our top line sales trends. It's because of their discipline and agility that we've continued to provide an outstanding shopping experience, while delivering better-than-expected profitability so far this year. On behalf of all our stakeholders, I want to thank our entire team for their continued extraordinary efforts.
Now, I'll turn the call over to Christina.
