“And for the full year, we're now expecting about $1 billion of incremental freight costs, even compared to our expectations only 3 months ago.”

In context

“hallenge our team has been facing, which became more acute in the back half of 2021, is driven by capacity constraints in both the global and domestic freight markets. These issues continue to make it more difficult and more expensive to move inventory where we need it to be. Our team has done a great job managing through these challenges. And as you've seen from our recent gross margin results, our P&L has reflected those higher freight costs. Coming into this year, we anticipated we'd see continued tight conditions and elevated costs in freight markets. But the actual conditions and costs have been much more challenging than expected. More specifically, first quarter freight and transportation costs came in hundreds of millions of dollars higher than our already elevated expectations. And for the full year, we're now expecting about $1 billion of incremental freight costs, even compared to our expectations only 3 months ago. Among the reasons for this incremental pressure, record high fuel costs are a meaningful driver as well as the global shipping market, where costs have stayed unusually high and where we sometimes need to rely on the spot market to secure adequate capacity. Compounding these near-term pressures on our gross margin rate, volatility in both consumer demand and delivery times placed additional stress on our supply chain in Q1, one that was already running lean on capacity in light of the growth we've seen over the last 2 years. As Brian and Christina mentioned, this quarter, we ended up carrying too much inventory in several categories where the slowdown in sales was more pronounced than expected, including home, electronics, sporting goods and apparel. In addition, capacity pressures wer”