Welcome to the Target Corporation's first quarter 2007 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. Bob Ulrich: Good morning. Welcome to our 2007 first quarter 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 retail environment, and then Doug will review our first quarter 2007 financial results and describe our outlook for the second quarter and describe our outlook for the second quarter and full year. Next, Greg will provide an update on key strategic initiatives that continue to fuel Target's performance and growth. Finally, I will wrap up our remarks and we'll open the phone lines for a question-and-answer session. This morning, we announced excellent financial results for the first quarter of 2007 and we are pleased with our performance. Overall, we continued to increase our market share, growing our total shares at 9%; a much more rapid pace than the growth rate of the overall U.S. market for similar or identical merchandise. Despite sales weakness which was concentrated in the first two weeks in April, our guests continue to find more reasons shop at Target more often and spend more on each visit during the quarter and a solid increase in average transaction amount. Our outlook for the remaining three quarters of 2007 and for the year overall envisions that Target will continue to generate a mid single-digit increase in comparable store sales. In addition, we expect both our new stores and our credit card operations to continue to contribute to our profitable growth. At the current time, we…

(Operator Instructions)Your first question comes from the line of Charles Grom - JP Morgan. Charles Grom - JP Morgan: Back in April, you guys were one of the first in retail to tip your hat that the consumer was pulling back. Can you walk us through the month, I think you said the first two weeks were soft and into the first three weeks of May; what trends you're seeing at the consumer level to give some perspective on why you think the consumer did, in fact, pull back those two weeks? Bob Ulrich: Well, in the early April time frame and just prior to Easter, we thought it was primarily due to the weather being unseasonably cold -- as a matter of fact, regard setting cold throughout the United States. Since that time, the consumer has bounced back and our business, overall, is fairly healthy, although our mix is slightly more skewed to our nondiscretionary categories than to some of the seasonal related categories like apparel and summer goods. But overall it was just that two or three-week timeframe that we really saw the softening up. Charles Grom - JP Morgan: Doug, could you review for us again which SG&A expense and gross profit margin items in Q1 that you're calling timing? Can you quantify those for us and I guess looking ahead over the next few quarters what the cadence of those factors are going to actually hurt margins in the next few periods? Doug Scovanner: The timing issues are much more focused on expenses than elements of gross margin rate. I'll call out a few, although, I would be careful to describe that our expense favorability was rather broad based. A couple of examples would certainly include marketing expenses which were much more favorable in the quarter…

Your next question comes from Bob Drbul -Lehman Brothers. Bob Drbul - Lehman Brothers: Gregg, can you talk a little about the profitability performance of the Global Bizarre and how it performed versus your expectations and what you learned this year and what you might apply for next year? Gregg Steinhafel: We were very pleased with the performance of Global Bazaar this year and we focused primarily on three things: greater affordability, stronger color impact and greater classification dominance. The combination of those efforts yielded to stronger sales and profitability results compared to the prior year. We will continue to enhance that for '08 and focus on those very same things and probably increase our level of promotional activity just slightly over last year, that was one area of opportunity we did cite after the fact. Overall, we're very pleased with our performance. Bob Drbul - Lehman Brothers: Given the disappointment in the first two weeks of April, the inventory number looks pretty clean. Are there any pockets of inventory that you are concerned with as you go into May and the rest of this year? Gregg Steinhafel: Overall, our inventory levels are in excellent shape. We would like to see a little bit stronger results out of our seasonal categories and out of our apparel group, but even having said that, overall those inventory levels are in pretty good shape as well. That is primarily as a result of our ability to shorten up lead times and keep liquidity within our business and being able to do that, we were able to get out of some of our second quarter commitments. So overall, we're fairly confident that we're going to have a decent sell-through in second quarter.

Your next question comes from Jeff Klinefelter - Piper Jaffray. Jeff Klinefelter - Piper Jaffray: Can you give us some perspective of your current run rate for in-stock and how it compares to last year in total and then the key item focus within your assortments and how that group is performing? I am really just trying to get to how much better can it get and how much can that contribute to your efficient inventory management and markdown reductions? Gregg Steinhafel: Overall we're pleased with our in stock levels, they are approximately at last year's levels or slightly above last year's levels and we're really continuing to focus on our top 2,500 items, our private branded products, add-in stock, our in-stocks during our transitions and really focusing on how we can continue to reduce our lead times and take unproductive inventory out of the network. So those are really the initiatives we're focused on. We really don't see a lot of upside in improving the in-stocks in some of our more basic categories because they are pretty significantly high right now. But in our seasonal areas and in our high volume and unique stores, we believe there are opportunities to reduce some of the inventories we have in the back room. Jeff Klinefelter - Piper Jaffray: Okay. This is a follow-up, Gregg, in terms of your utilization of your import DCs over the last couple of years in those seasonal areas. What kind of magnitude of in stock performance have you seen there? As a follow-up on your mid single-digit comp guidance for the balance of the year, what are your expectations for the lower margin commodities versus the higher margin in home and soft lines areas within that mix of that comp? Really looking at, if there is going to be upside to gross margin, is it going to come from an outperformance some of those higher margin categories? Gregg Steinhafel: I'll take your second question first. That's exactly correct. If there is going to be upside, we need to see stronger performance out of both our apparel and our home-related businesses. Our margin rates are strong across the board and where we have softness, it's almost exclusively due to the mix-related impact of our consumables and food business growing at a faster rate than apparel and home. As relates to the import warehouses, we're really pleased with how they perform and our ability to aggregate upstream apparel and seasonal merchandise and the primary benefit is to wait and see how the season develops and to more closely pinpoint the second and third and fourth installments of our inventory. So we continue to invest in those facilities and they're producing excellent results.

Your next question comes from Todd Slater with Lazard Capital Markets. Todd Slater - Lazard Capital Markets: Doug, if the write-off rates continue to remain lower as you've mentioned, what would be your expectation on the credit margin for the rest of the year? Doug Scovanner: Well, I think you've dictated the answer by the way you phrased the question. If our write-off rate remains lower then of course our profitability as a percent of receivables would increase. The write-off rate that we're currently experiencing, as you know, includes a layer of write-offs that were very easy to predict in both magnitude and timing associated with our adoption of new standards of increased standards of minimum payments. We talked a lot about that last year. We clearly reserved for the losses associated with that in advance as appropriate, and we're now experiencing some of those write-offs. It's one of the key reasons why write-offs in the quarter exceeded our expense in the quarter. But obviously, if our experience turned out to be favorable on that metric moving forward, it would have a beneficial impact on credit card contribution to earnings before taxes as a percentage of earnings receivables. Todd Slater - Lazard Capital Markets: Could that also be where there's some potential upside to your numbers? Doug Scovanner: I'd underscore the word potential, but that potential certainly exists. Todd Slater - Lazard Capital Markets: Could you also talk about the trend in funding costs year over year, where we cycle those rate increases and things like that? Doug Scovanner: Year over year at this point we're still experiencing an increase in floating rate funding costs and as the year moves on, I would personally expect that to moderate. Admittedly, I'm using a bit of a crystal ball there to try to guess what the Fed actions might be for the balance of the year. From a mix standpoint, though, our overall portfolio actually has a rate benefit year-over-year because we have a higher mix of lower cost floating rate debt today than we had a year ago as a result of funding the increase in floating rate assets in our credit card portfolio.

Your next question comes from Dan Binder - Buckingham Research. Dan Binder - Buckingham Research: First, just on the credit business again. Given that the delinquencies have been coming down the last couple of quarters, is there any reason that the reserve couldn't also come down? If you can give us an idea longer term what kind of rate you would target as a percentage of the receivables? Doug Scovanner: Well, delinquencies of course as we just disclosed them, 3.2% at the end of the quarter and 3.0% a year ago; delinquencies have been relatively stable in the last several quarters, certainly looking one layer below stability, we see a bit of favorability. That's a great leading indicator but it's certainly not the only metric by any stretch of the imagination that's relevant in assessing what our reserve position should be. Net-net as I mentioned earlier, we're reserved in anticipation of some modest adversity in write-offs as a percentage of total receivables compared to current experience. Again, that either will or won't occur. If it does occur, then you'll see stability in our P&L. If we're favorable to that outlook, then you would see some modest expansion in our profit margin measured any way you want to measure it. Dan Binder - Buckingham Research: Longer term, should we be thinking about the allowance as a percentage of receivables in sort of that 7.5% to 8% range? Is that reasonable? Doug Scovanner: Well, of course, that's a statistic that has seasonality to it so even if things were absolutely on auto pilot, that metric will go up and down with the quarters as we take on seasonal receivables that at the margin are less risky, less prone to future write-offs than receivables during the year. It's why our allowance as a…

Your next question comes from Christine Augustine - Bear Stearns. Christine Augustine - Bear Stearns: Thank you. Could you please discuss where you're seeing any inflation, if you are, at retail and then also on the cost side the big items like payroll or medical costs? Just so I can understand better the gross margin improvement in the first quarter, you had lower markdowns. Could you discuss what impact, if any, you're still seeing from the $4 generics and how that might be affecting the gross margin? Thank you. Gregg Steinhafel: The inflation as it relates to the general merchandise business is primarily concentrated in the food categories right now and to a lesser extent some of the resin-based products or commodity products like paper, but we've seen some fairly aggressive increases in food, whether it's citrus products or related to corn and wheat-based products, that is having a pretty meaningful effect. Doug Scovanner: I would follow-up, add the comment that if you look at the first quarter analytically adjusted for those financial reporting issues that I've talked about before, gross margin net-net analytically up maybe 15 or 20 basis points, more than 100% of that driven by markdown favorability due to excellent inventory controls coming into and throughout the quarter. Partially offset by mix and other adverse mark up factors. Gregg Steinhafel: $4 generic impact really has a negligible effect on total company performance but within that business unit itself obviously is putting strain on the margin rate within our RX and pharmacy business group, but we are getting substantially more new guests and new prescriptions both on the generic side and on the branded side. Because we have the capacity within our stores to handle those increases in script volume, we're not incurring any levels of payroll expense within our stores. So we're getting the benefit of increased traffic at a lower margin rate, but we're getting the offset of that is new prescriptions and greater sales of OTC and other products throughout the store. Christine Augustine - Bear Stearns: Just on the cost side, Doug, I'm just wondering about some of big line items. Are you seeing any variation versus how you'd planned? Doug Scovanner: On balance nothing significant relative to our plans. We remain in a situation where there are, of course, a lot of inflationary inputs into our expense base, and it remains critical to delivering our P&L for us to be able to engineer improvements in productivity in our stores, in our distribution centers, and elsewhere to be able to control expenses as a percent of sales. But nothing significant compared with our expectations when we came into the year.

Your next question comes from Greg Melich -Morgan Stanley. Greg Melich - Morgan Stanley: Two questions. First, Doug, what's the change in CapEx versus what you had planned at $300 million? What's it actually going into? Then Gregg, could you talk a little about sourcing and particularly how these things rumbling in Congress in terms of protections in China could influence how you think about sourcing into next year? Doug Scovanner: On the CapEx side, this is nearly exclusively a new store story. Some of it has to do with timing. But importantly some of those timing issues are '07 versus future spending, very specifically in the first quarter. For example, we acquired some fairly expensive pieces of land that will be developed to be new stores opening in '08 and '09 as part of our ongoing store program and collectively, we think those timing issues will drive an additional $300 million net for the year. As an aside, we also acquired in the quarter's CapEx in an unplanned sense, if you will, a piece of land underneath an existing store a very high volume, very high profit store that was sitting on leased land where the lease would expire long, long before the value of that store could be fully realized. By acquiring the land underneath the store, we have now ensured our ability to continue to run that high volume, high profit store for many decades to come. Gregg Steinhafel: As it relates to your question on China, no one really knows what's going to happen as it relates to China, but whatever does happen it will affect all of us basically the same. We don't believe our exposure is any greater than any other retailer. We have been committed to a very balanced import and international sourcing…

Your next question comes from Virginia Genereux -Merrill Lynch. Virginia Genereux - Merrill Lynch: I see the Archer Farms ads on television. Are you advertising the food more and if so, could that be impacting some of the sales mix shift you referred to? Gregg Steinhafel: I wouldn't say that the Archer Farms campaign would in and of itself drive the incremental food sales to the extent that we are seeing overall food sales. That is our branding campaign and an image campaign and a positioning campaign to really establish Archer Farms as a signature national brand, an important component of our long-term strategy to build our own brands. Typically, our broadcast campaigns are not going to drive short-term sales in any given category. It's more long-term brand building image conscious and awareness kinds of equity we're trying to create through our broadcast campaigns. Doug Scovanner: Beyond that, if it does drive guests to the store to buy Archer Farms, all the more delightful, but it’s a rare basket analysis that contains Archer Farms products and nothing else. Virginia Genereux - Merrill Lynch: I guess I'm asking, is more of the ad budget going to food? Gregg Steinhafel: As our presence in food increases, I mean, we are evolving and we are giving more space in our circular. We are committing somewhat more of our broadcast to the food business. It is not in a disproportionate sense by any stretch of the imagination, it's just part of our evolving campaign to focus on key priorities and segments that we believe are important to us and mix shift. Sometimes it's going to be on food. Next season we'll shift the emphasis. It'll be on home. Then we'll rotate that on apparel. It just happens to be this time of year we're…

Your next question comes from Dana Telsey - Telsey Advisory Group. Dana Telsey - Telsey Advisory Group: Good morning, everyone. Can you please talk a little bit about private label penetration and food and in other areas, where you see that going, what the opportunity is, what you're seeing on the $4 generics program? Also, anything and any progress on the consumer electronics area and your response to that? Thank you. Gregg Steinhafel: Our private label penetration in food, we ended 2006 at approximately a 15% penetration rate and we expect to add between 200 and 300 basis points per year for the next two or three years. As it relates to the $4 generic, I mentioned we're seeing excellent growth in the scripts, it's putting pressure in our margin rates. Overall, we're very pleased with how that mixes out in the end with new generic and branded scripts coming our way. Slight pressure on the margins but greater mix and traffic flow went into our stores. The consumer electronics business reset at the end of April. We had a strong first quarter in consumer electronics. The business is healthy. As we head into the second quarter, we're seeing good growth in video games, in portable electronics and in obviously flat panel televisions and a handful of other categories and overall we expect it to be a decent year.

Your next question comes from Neil Currie - UBS. Neil Currie - UBS: I just wanted to ask the same question a different way from previous questions. Just to categorize your thoughts on the first quarter, maybe adjusting for some of those different timings of SG&A expenses, would you say that the first quarter came in line with what you expected at the start of the quarter or maybe better than where you expected or maybe even in line, despite a weak or early April? Is there any color you can give on that? Doug Scovanner: Yes. I mentioned earlier in my prepared remarks that in both our core retail operations and in our credit card operations our results were modestly higher than our expectations coming into the quarter. Neil Currie - UBS: So I presume therefore if we had a better April, maybe even better then? Doug Scovanner: Certainly. Other than the things that went wrong, it was spectacular. Neil Currie - UBS: The different timing of the cost that you talked about? Doug Scovanner: I think that's called EBS, earnings before bad stuff.

You're final question comes from Peter Benedict -Wachovia. Peter Benedict - Wachovia: It sounds like obviously business picked up since that early April but am I understanding correctly that seasonal is still on the softer side of your expectations? If so is there a regional explanation there? What can you tell us about that? Thanks. Gregg Steinhafel: Your assessment is generally correct. We're seeing our seasonal business -- apparel, lawn, and patio, sporting goods, and related categories -- performing slightly under our expectation, but better than they did during that two-week timeframe in April and the end of March, but not quite as robust as they have been in the first two months of the year. Overall, it's respectable but not as healthy as we would like it to be right now. Peter Benedict - Wachovia: Thanks, Gregg. One more follow-up just on that, you guys aren't planning any big price points, but is there anything that you can look below the layer and see an aversion to the higher price point parts of the store? Is that evident, or any trading down, anything like that? Gregg Steinhafel: We're currently not seeing any of the trading down. As a matter of fact, we're pleased with the initial reads out of our new electronics set and the average transaction amount in that area is up slightly over last year. So we're seeing really no resistance from at least the technology side of our business. I really can't speak to the apparel or the home side right now but I'm not aware of any change in what our average transaction amount is in those areas. Bob Ulrich: Operator does that conclude the people waiting for questions?

Yes, sir. There are no further questions. Bob Ulrich: Okay. Then that concludes Target's first quarter 2007 earnings conference call. Thank you all for your participation.