Welcome to the Target Corporation's fourth quarter and year end earnings release conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Bob Ulrich, Chairman and Chief Executive Officer. Please go ahead, sir. Robert Ulrich: Good morning. Welcome to our 2006 fourth quarter and year end earnings conference call. On the line with me today are Gregg Steinhafel, President; and Doug Scovanner, Executive Vice President and Chief Financial Officer. This morning I will provide a brief update on our view of the current competitive and consumer environment, and then Doug will review our fourth quarter and full year 2006 financial results and describe our outlook for 2007. Next, Gregg will provide an update on the key strategic initiatives that continue to fuel Target's strong performance and consistent growth. Finally I will wrap up our remarks and we will open the phone lines for a question-and-answer session. As Doug will describe in more detail shortly, we announced excellent financial results this morning for Target's fourth quarter and full year 2006. As expected, we enjoyed strong sales growth during the final three months of the year and we were able to translate that top line strength into a meaningful increase in our profitability. The peak sales period between Thanksgiving and the end of December was intensely competitive, especially in apparel, as we expected it would be. But by remaining focused on our strategy, we delivered a holiday marketing campaign that highlighted Target's distinctive attributes and reinforced our Expect More, Pay Less brand promise. We carefully planned our inventory levels and drove traffic to our stores and Target.com, generating profitable sales growth; we enjoyed double-digit increases in gift card issuance and redemptions; and we continued to delight our guests by offering the right combination of everyday essentials and…

Your first question comes from the line of Gregory Melich - Morgan Stanley. Gregory Melich - Morgan Stanley: Doug, could you take us through some more color on the gross margin expansion, mark up and mark down, if inflation had any impact there? Doug Scovanner: The explanation for the full year is going to sound rather boring, because for the full year gross margin rates was only slightly changed and even the underlying components had very little movement. To be more precise, mark up was within a handful of basis points of last year. Total markdown experience was within a handful of basis points of last year. Obviously we had some mix effects inside gross margin rates, but I cannot recall a year in history where the underlying components were as stable for the full year as they were in 2006. Gregory Melich - Morgan Stanley: In the fourth quarter? Doug Scovanner: Little different story in the fourth quarter. As I mentioned in my remarks, the overall favorable rate change in gross margin and the overall unfavorable rate change in SG&A, both of which were very small, were driven in the main by some rather immaterial financial statement presentation issues. While the components moved around a bit more, I'd say in gross margin rate, for example, in the fourth quarter, mark up was unfavorable, and mark downs were favorable to last year. But in essence, neither of those movements was particularly large, and in the aggregate gross margin grew 19 points in the quarter. Gregory Melich - Morgan Stanley: Gregg, if we look at what food and other things are doing to help drive traffic, I'm thinking, as you go into California and add your Super Targets there, how does that change that equation? Does it change when you're trying to sell food in California? Gregg Steinhafel: It really doesn't change. We're operating Super Targets in many states right now, and we see California very similar to Super Targets that are operating in Texas or Colorado today, so no real change from our point of view. Gregory Melich - Morgan Stanley: That mix of first quarter stores of five Super Targets and ten discount stores, I think I remember on the last call you guys mentioned that Super Targets were approaching a third or half of the backlog. Gregg Steinhafel: I think we said that in square footage, but essentially, the Super Target store count this year will be our largest opening round ever. There's obviously quite a mix in our March, July, and October openers, but we'll be opening 30 to 35 Super Targets this year.

Your next question comes from the line of Jeff Klinefelter - Piper Jaffray. Jeff Klinefelter - Piper Jaffray: Doug, on inflation/deflation you've given us a perspective in the past coming out of fiscal years what role inflation or deflation played in your overall comp trends -- if you could give us an up-to-date perspective on that coming out of this year. Does that lead to any perspective going into this following year in terms of whether comps will be driven more or less by traffic or transactions? Doug Scovanner: As you know, we measure that with precision once a year as of October 31st. Our experience over the 12 months ended at that point, or comparing that point to 12 months ago, to be more precise, our sales mix reflected about a 1% deflation rate, about 1% deflation. My outlook for '07 is reasonably neutral. There are some inflationary inputs, but we continue to work diligently to control those drivers and zero plus or minus is my outlook for '07 on that figure. Jeff Klinefelter - Piper Jaffray: In terms of overall mix, Doug, when you look at the lower margin commodities versus the higher margin opportunities in apparel and home and other areas, any change in perspective going into '07 on what the mix might do to overall margins? Doug Scovanner: No, I think that the mix, as is usually the case for us, is somewhat of a headwind from a gross margin rate standpoint. Very specifically, we enjoy rates of sales growth in the lower margin categories that are typically higher -- in some cases sharply higher -- than the rate of growth in some of our higher margin categories. Looking back on '06, frankly I'm delighted with our overall gross margin rate performance, given the fact that, as we have discussed many times, earlier in the year some of our home businesses were struggling at the top line. Those are, of course, sharply higher-than-average gross margin rate categories, and we were able to essentially, in consolidation, achieve gross margin rate in line with prior-year levels, despite that mix-related sales issue in our home products. So I'm just absolutely delighted with the aggregate performance. Jeff Klinefelter - Piper Jaffray: Any comments on Global Bazaar year 3, the effort and what impact that might or might not be having on the overall home business? Gregg Steinhafel: We just finished Global Bazaar 3, and we're very pleased with the overall performance. As you know, we made some changes to this year's assortment and presentation, focusing more on color, classification, dominance and affordability, and the combination of those factors led to us delivering essentially sales on plan and margin on plan as well. So we're assessing the potential for next year and overall we're very pleased with how we ended the Global Bazaar season.

Your next question comes from the line of Bob Drbul - Lehman Brothers. Bob Drbul - Lehman Brothers: Good morning. When you look at the '07 square footage expectation, can you just talk a little bit about the number of the discount stores that will have expanded food? When do you think you'll start to get the capacity utilization up on these new food distribution centers? How long will start-up costs be until you start to really benefit from the expense savings? Gregg Steinhafel: All of our stores in '07 will have an expanded food presence whether they are Super Target or a general merchandise store, they will have essentially the largest footprint of food that we have gone to market with. All of our remodels will similarly have that expanded food footprint. As it relates to our food distribution centers, the first one that opens in 2008, we expect the ramp-up time and the effectiveness of those facilities to be rather short. So we believe that within the first 12 months of operation we will achieve the sufficient scale to deliver the appropriate economic benefits that we're expecting out of this supply chain strategy. Bob Drbul - Lehman Brothers: Can you talk a little bit about any issues you had in the fourth quarter with out of stocks and where you ended the fourth quarter and your expectations for 2007? Gregg Steinhafel: We believe that we had strong in-stocks throughout the entire fourth quarter season. Clearly there were some items and categories in video games and some technology that had some shortages, but overall we were pleased with our in-stocks throughout that season. We transitioned very cleanly, very timely, and we're entering '07 in just outstanding shape.

Your next question comes from the line of Deborah Weinswig - Citigroup. Deborah Weinswig - Citigroup: Good morning. Back in August and September when Wal-Mart was aggressively launching their $4 generics program you stated that you were going to match them. Can you talk about what trends you've seen in pharmacy and maybe the HDA side as well, as a result? Gregg Steinhafel: Our pharmacy business, our OTC business and related products have been very, very healthy. We continue to see increased script transfers as a result of matching Wal-Mart's $4 generic program. Our gross margin rate is under pressure due to the $4 generics, but overall we are maintaining the margin dollar that the program has generated through increased script transfers and the sales of other related products within those categories. So overall we're just fine with where we're at on $4 generics. Deborah Weinswig - Citigroup: Very excited to hear about the opening of the perishable food DC You had mentioned it was going to serve both the discount stores and Super Targets. Can you talk a little bit more specifically about what it will be doing with regards to perishable food in the discount stores? Gregg Steinhafel: Well, currently, as you know, our dry grocery is serviced through our regional distribution center network. The perishable distribution centers will service dairy, frozen, and fresh products both in Super Target stores and the dairy and frozen goods in general merchandise Target stores that have expanded assortments and case counts that are over 38 or 40. Those stores with that expanded assortment will be serviced by these new food distribution centers as they come on line. These are the same stores that are currently being serviced by the Super Value and CNS network. Deborah Weinswig - Citigroup: With regards to Target.com, it sounds like that's been a great growth opportunity for you. Are you willing at this point in the game to talk about a stated goal in terms of sales? And also, how do you think about the growth opportunities in that business? Gregg Steinhafel: Well, we're very pleased with our performance in Target.com. We had a sensational year, both on the top line and the bottom line and I think that by describing it in terms of 30 to 50 basis points, you can essentially determine what that size and scope of the business is and what that potential will mean for '07. Deborah Weinswig - Citigroup: As we think forward we should continue to assume 30 to 50 basis points? Robert Ulrich: Certainly that's a historic number, and over time that figure, as Target.com continues to grow, will not maintain that basis point effect. But that's a responsible range of expectations for '07. Deborah Weinswig - Citigroup: Okay, great, thanks so much. I really appreciate it, and congratulations on a great quarter.

Your next question comes from the line of Teresa Donahue - Neuberger Berman. Teresa Donahue - Neuberger Berman: Good morning, everyone. I was wondering if you could take a minute to walk through any anticipated impact of a greater number of remodels might have on the first nine months of the year in terms of potential impact on SG&A? I think you've already indicated a sales impact over that time. Robert Ulrich: Yes. To clarify, we're talking about our so-called Phoenix activity as distinct from our normal remodel activity. The Phoenix activity represents situations where we typically close a store outright in January and rebuild on site a brand new and in most cases much larger building and reopen in our October cycle. There's some variations on that theme but that's the typical situation we're talking about. The main effect isn't on our margin rates. The main effect is on our sales. On balance, year over year, I mean, we have this activity in many years. We had it in the prior year as well, but the reason I called it out this morning is that year over year, we will have a couple hundred million dollars lower sales, all else being equal. Now those sales come back starting in October of '07 and, of course, we'll be not only expanding our sales as a result of that activity in each of those buildings, but also expanding our profitability. So it's a temporary phenomenon and it's more of sales and EBIT dollar issue. It is not an EBIT margin rate issue to any substantial degree. Teresa Donahue - Neuberger Berman: What are the number of Phoenix projects and what were they last year? Robert Ulrich: We get into some variations on the theme here, but give or take, it's an increment of about five buildings, depending on exactly how you want to count it. Teresa Donahue - Neuberger Berman: The total number? Robert Ulrich: Still single-digits, a handful more.

Your next question comes from the line of Adrianne Shapira - Goldman Sachs. Adrianne Shapira - Goldman Sachs: Heading into the quarter, I believe we had expected pre-opening timing shifts to favorably impact the fourth quarter. Doug, could you perhaps add some color and quantify what that shift was? Doug Scovanner: Pre-opening expenses in the quarter as a percent of sales, in fact as expected, were a benefit to SG&A expense. Not a huge one, but think of it as 10-plus basis points. Adrianne Shapira - Goldman Sachs: Okay. So how should we think of the offset there? Doug Scovanner: I don't know what you mean by the offset. Adrianne Shapira - Goldman Sachs: Well, in terms of, we didn't see the complete benefit in the SG&A line of the timing, so I'm just wondering what offset some of the benefit related to that? Doug Scovanner: Recognize that we're down into some very, very small and subtle changes. In the aggregate, SG&A as a percent of sales increased 10 basis points, which, to me, is virtually flat. But I mentioned in my remarks that all of that change actually, about 15 basis points in the quarter of extra SG&A as a percent of sales, was driven by the financial statement issues that I referenced in my remarks. So, absent that, SG&A was about 5 basis points favorable, and the big driver of that favorability was the 10 -plus basis points of favorable start-up that we're discussing. Again, we're down into some very granular numbers here, talking about single-digit basis points. Adrianne Shapira - Goldman Sachs: Okay, that's helpful. And then just going forward, can you maybe give us some insight into CapEx. You'd mentioned opening two new DC's this year, so what impact that has on your CapEx plan? Doug…

Your next question comes from the line of David Strasser - Banc of America Securities. David Strasser - Banc of America Securities: You had talked about California and I just wanted to get a sense of how you view the growth in California for Super Target over the next several years, taking into account some of the issues that Wal-Mart's been plagued with from a zoning standpoint in getting into California in any significant way? Gregg Steinhafel: Generally speaking we have quite an opportunity, I believe, to grow our Super Target format and to grow our overall presence even beyond Super Target in California. We certainly have some individual markets where it's difficult to find large enough parcels of land that are adequately zoned, but generally speaking, zoning and entitlement issues are not the issue that determines our Super Target growth. Generally speaking it's the challenge of finding large enough parcels is land in trade areas that have sufficiently dense household counts, with households with income demographics and other attributes that tell us that it would be a great market for a Super Target. Robert Ulrich: The other thing I'd like to point out is that Wal-Mart is almost totally focused on just the super centers and our mix balance is out somewhere between two-thirds and 70% regular stores. When an opportunity wasn't available for a site large enough for a Super Target we put in a very, very profitable regular store, which also has our expanded food offering to draw additional traffic, but does not happen to have fresh produce and meat.

Your next question comes from the line of Justin Post - Merrill Lynch.

I have a question on the credit business. I think a few months ago you commented that credit card write-offs had approached 7% to 7.5%, and then today you mentioned it being at 2004/2005 levels, which is more like 8%, I think. I was just wondering can you provide a little more detail on your write-off guidance and any color on timing? Robert Ulrich: We do expect write-offs to continue to rise and no, I'm not trying to make a comment that as precise as the way you framed your question. We finished the year with an allowance as a percentage of receivables that is a high point for us, and that allowance was specifically calculated, in our case, based on our estimate of what the write-off picture looks like going forward. In comparing our previous comments to today's comments you should not believe it is not the case that we are making a different numerical judgment. It's simply a different way of describing where we're headed.

Then my second question is just about the EPS contribution from the 53rd week. Could you provide any more color there in terms of roughly how much that was? Doug Scovanner: Certainly. I would make two separate comments. First of all, if you take a look at the overall contribution to our earnings from our credit card operations for both the quarter and the year, we averaged about $0.01 of EPS a week, and there's nothing different about that 53rd week. Looking at our core retail operation outside the holiday season, we generated more or less $0.04 or $0.05 per week. That week was sharply lower in its profit contribution from our core retail operations, just because of the specific attributes of the week. But sort through that, you certainly get something in the range of $0.02 or $0.03 of EPS contribution from the 53rd week. That was, of course, incorporated in our plans as the year began and incorporated in everyone's estimates as well.

Your next question comes from the line of Mark Rowen - Prudential. Mark Rowen - Prudential: Doug, we've noticed that your delinquencies and charge offs really haven't increased, and given all the reporting on what's going on in the subprime market, do you think that's just contained in home equity and that market and you haven't seen any of it? Or, do you expect in your forecast that your delinquencies and charge offs are going to rise more this year? Doug Scovanner: Well, all of the attributes of our portfolio, including the minority of our receivables that are classified as subprime, is contained in our forward-looking statements. So at an aggregate level I would tell you that we continue to expect robust overall performance from the portfolio. Having said that, the fact is that, as I mentioned earlier, our allowance as a percentage of receivables is at an all-time high and that clearly reflects our belief that write-off rates as a percentage of receivables will climb, certainly at a detailed level, a piece of that is at the margin driven by some of the factors you are talking the about. But we are very disciplined in our underwriting, we are very disciplined in our risk management in this portfolio, and I do not expect anything going on in the subprime markets to have any impact to any extent that causes concern in these kinds of calls over the next several quarters. Mark Rowen - Prudential: Okay. Gregg, you mentioned increasing your share in consumer electronics and certainly resetting the department and increasing selection on flat panels. Given that and given the fact that you're expanding groceries in the general merchandise stores, both of those are lower-margin categories so given that overall you'll have flat margins, what basically offsets those two categories which it looks like you want to gain share in? Gregg Steinhafel: Sure. As Doug mentioned earlier, really a couple of things. One would be our continued emphasis on direct sourcing and our global sourcing operations, as we expand that approximately 100 basis points a year throughout the organization, that will be an offsetting factor. Our emphasis on private-brand development throughout the store and primarily in our food business continues to strengthen and build momentum, and those are at more attractive margin rates. And then the overall health of the apparel and particularly the home business, as the home business strengthens at substantially above company gross margin rate levels, we would see margin rate offsets to the negative consequences of food, consumables, paper, electronics, and other low-margin categories growing at a faster rate than the company in total. Not dissimilar to what we have been experiencing and offsetting over the last four or five years.

Your next question comes from the line of Charles Grom – JP Morgan. Charles Grom - JP Morgan: Can you quantify the costs you will incur for the two new distribution centers you're going to open up this year, both from a CapEx perspective and to the SG&A line? Doug Scovanner: First of all from a CapEx standpoint, when we open distribution centers it typically represents an investment somewhat above $100 million. Separately, in the aggregate it's just an element of our $4+ billion CapEx program. As I mentioned earlier, CapEx will rise give or take in line with sales this year, and so I don't expect anything meaningful in the aggregate related to start-up costs. Charles Grom - JP Morgan: Some of the department stores are seeing softness thus far in February, particularly in apparel, citing weather, calendar shifts. I'm just curious to see if you guys have any material change in shopping behavior since the beginning of the year? Doug Scovanner: Well, we are experiencing the same weather as everyone else, but we mentioned in our sales update mid-month that we are right on track to achieve our sales projections for the month. Of course, as we mentioned earlier today, we're going to incorporate Target.com in those comps at the end of the month, even though it was not in our beginning of the month sales outlook. Charles Grom - JP Morgan: With GO International in its second year now, can you touch on what you learned in year one and how you plan to tweak the offering over the next 12 months? Gregg Steinhafel: Well going forward, year two we are going to deliver more newness, more freshness throughout each timeframe of each individual GO International design collection. So, in year one we delivered more of that merchandise, maybe 70% or 75% of it up front, and we had modest amount of refreshment and changes to the assortment in the balance of the 90 days. This year's program, I wouldn't say it is the opposite percentages, but we are delivering far less up front, changing more frequently style, color, and silhouettes throughout that timeframe.

Your next question comes from the line of Dan Binder - Buckingham Research. Dan Binder - Buckingham Research: Any thoughts on Q1 in terms of the earnings per share? That's the first question. Doug Scovanner: Well, we're off to a great start here in the first quarter, as we mentioned with our sales outlook. Certainly the depreciation adjustment that I referenced from the prior year will have an impact on the year-over-year growth, but I'm very comfortable with where we are and where we're headed. Dan Binder - Buckingham Research: Okay. I guess just looking at the credit card business, as you noted the allowance is at an all-time high relative to write-offs. I'm just curious, in this quarter we saw the provision for bad debt only somewhat higher than net write-offs versus what we saw in prior quarters with build up. As we think about that going forward, should we be thinking about that bad debt provision matching up with the net write-offs more closely in fiscal year '07? Doug Scovanner: Generally speaking I would think that, if we've done our homework right and if the portfolio behaves the way I would predict that it would, you would expect to see write-offs in line with expenses without a lot of change, therefore, in the allowance. Now, obviously, every quarter we learn more and we have a refined outlook and make some adjustments to see if they're warranted, but those are really independent calculations. The write-offs are a mechanical result of our accounting policies, and the expense that we record in every quarter is a result of a detailed analysis of the then-current portfolio and its risks. But on balance I would expect that write-offs and expense should be roughly in line with each other in '07. Dan Binder -…

Your next question comes from the line of Dana Telsey - Telsey Advisor Group . Dana Telsey - Telsey Advisor Group: Can you please talk about the impact of minimum wage? Does that have an impact this year in terms of the increase? Lastly, as you look at pricing for 2007, how are you looking at the overall pricing environment and what your stance will be? If it is at all different this year compared to last year on any particular categories? Thank you. Gregg Steinhafel: We really do not anticipate any impact of significance from minimum wage. In this year and even next year it would be very, very modest. The pricing environment continues to be as it has been. It's aggressive, it's competitive. There are a lot of competitors that we compete with that are aggressive on price and we will continue to match Wal-Mart in local markets on like items, but while aggressive, it's still stable and it's still reasonably rational. So there has not been a real meaningful change in pricing or the dynamics around how aggressive the competitive set is over the last 12 months or so.

Your next question comes from the line of Michael Exstein - Credit Suisse. Michael Exstein - Credit Suisse: Just following up on a question on Global Bazaar, your home business was very tough earlier, in '06. Can you just talk about what changes you've made to that business and what you're seeing in that business right now? Gregg Steinhafel: Well, we've done a lot of things in home, and I don't want to paint the broad-brush that everything in home is treated the same. Our stationary business was strong, continues to be strong, and so we had very minor modifications in that particular business. Our housewares business was consistently strong last year, and that was a combination of home storage, small appliances, and cookware. Where we really struggled in '06 was our domestics and our decorative home businesses. As we have transitioned category by category, we have worked to improve the good, better, best balance. We have focused on the right space allocation, the right lifestyle merchandising, the right color impact, mix impact, all the merchandising aspects of putting together the right kind of assortment, so that we have an Expect More, Pay Less differentiated, but very compelling assortment. So we made a number of changes that were different, depending upon if it was furniture or lighting or picture frames or bedding. And we're just encouraged that the combination of those changes, while specific business by business, are gaining traction and as a result of that we expect improved performance in '07. Michael Exstein - Credit Suisse: What do you think the depreciation and amortization run rate will be for the year? Doug Scovanner: Depreciation and amortization will approach $1.7 billion for the year. That's essentially right in line with the growth that's consistent with our CapEx, as long as one respects the adjustments that we made in the first quarter of 2006.

Your next question comes from the line of Christine Augustine - Bear Stearns. Christine Augustine - Bear Stearns: Doug, when you look at your forecast for 2007, what are your expectations for some of the major line items in SG&A, payroll, utilities, benefits? Are you anticipating any relief at all in terms of energy costs? I'm just wondering for the major categories directionally where you think they're headed this year? Doug Scovanner: As is always the case, we have a huge amount of detail underpinning our overall outlook, and certainly there are some categories that will increase slightly faster than sales. There are some others where we get some benefits by having slower growth in sales. We have been particularly focused on our rate of growth of SG&A, given the experience of the last 12 to 18 months. On balance there really isn't any one category that sticks out, and on balance I believe that SG&A will be well controlled in 2007. Certainly there will be a different story quarter by quarter, but by the time the dust settles on the full year, I do not expect there to be much of an SG&A story in 2007. Christine Augustine - Bear Stearns: You're not expecting any kind of pressures versus what you saw in '06? Doug Scovanner: No, and I would tell you I do not expect to see pressures, but I would also add quickly that of the 34 basis points year-over-year adverse SG&A as a percent of sales we experienced in '06, all but about ten basis points is due to the financial statement matters that I talked about earlier and driven by the one-time benefit of the Visa litigation settlement in the prior year and driven by the fact that we no longer enjoy a stream of income from the new owners of Mervyns's to provide their IT services. So when you bundle all of those kinds of either nonrecurring or rather unique items together, it's two-thirds of the SG&A issue in 2006, with only a remaining ten basis points in the aggregate driven by these pressures. So it wasn't a very big issue in 2006, and I don't expect it to be any issue in 2007. Christine Augustine - Bear Stearns: In the past, you've talked about mall-based stores, consolidation in the department store industry. If a block of stores became available you would certainly take a look at it. Is that still your strategy? Doug Scovanner: We remain ready to purchase any site, mall based or otherwise, that is suitable for conversion to a Target store and meets our financial criteria. If blocks of real estate were to come along, we have the financial capacity to be able to acquire that within reason about anything imaginable, but that has not characterized our experience over the last year or so.

There are no further questions at this time, sir. Gregg Steinhafel: Thank you all very much for joining us. That concludes Target's fourth quarter and full year 2006 earnings call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.