Fiscal2007 Highlights

- Total revenues increased 6.5% to $63.367 billion from $59.490 billion in 2006, fueled by the contribution from new store expansion, a 3% increase in comparable store sales, and contribution from credit card operations, offset by the impact of an extra fiscal week in 2006. On a 52-week over 52-week basis, total revenues in 2007 increased 8.4%. Total revenues include retail sales and net credit card revenues. Comparable-store sales are sales from stores open longer than one year.
- Earnings before interest expense and income taxes (EBIT) increased 4% to $5.272 billion, compared with $5.069 billion a year ago. EBIT in core retail operations grew 1.3%, while the contribution from credit card operations to total EBIT rose 18.9%. Within core retail operations, both gross margin rate and expense rate were unfavorable to the prior year.

- Gross margin rate represents sales less cost of sales expressed as a percentage of sales.
- Expense rate represents selling, general and administrative expenses expressed as a percentage of sales.

- Earnings before taxes (EBT) totaled $4.625 billion, an increase of $128 million, or 2.8% over 2006. The contribution from the company’s credit card operations to full year earnings before taxes, net of the allocated interest expense, was $600 million, an increase of $103 million, or 20.8%, over fiscal 2006. Credit card EBT performance was driven by strong growth in average receivables, combined with a moderate increase in the yield on those receivables.
- Net interest expense increased $75 million compared with 2006, due to higher average debt balances, including the debt to fund growth in accounts receivable.
- The company’s annual effective income tax rate was 38.4% compared with 38% in 2006.

- From a merchandise perspective, sales in 2007 reflected a typical spectrum of relative performance. The company experienced strong comparable store sales growth in Food, Health and Wellness and other commodity categories as well as in both Electronics and Sporting Goods. In addition, the company was pleased with the sales growth in 2007 in both Ladies'' Apparel and Newborn Infant and Toddler categories.
- In contrast, Toys had challenging year, especially in the second half of the year, as recall related activity affected the entire industry and sales of prerecorded music and movies continued to decline in 2007. Other weak categories for the year included Jewelry and Accessories, Shoes, Men''s Apparel, Domestics and Christmas Seasonal.

- Throughout the year the company intensified focus on driving more frequent guest visits, delivering great value and increasing reliability across the chain. The company continued to deliver on the ""Expect More"" half of brand promise by providing a constant flow of new designs and innovation throughout the store.
- The company continued to improve operational performance and speed-to-market through innovation and investment in infrastructure, supply chain and technology. In particular, the company continued to strengthen global sourcing capabilities, enabling to shorten lead times and reduce costs while delivering trend rate quality merchandise.
The company remained focused on product safety, launching new technology to improve the process of analyzing the testing and inspection results for factories making own-brand products. The company expanded multi-stage testing process to more categories across the store, allowing testing of own-brand products earlier and throughout the product lifecycle.

- The company partnered with leading modern home company Dwell Studio to introduce Dwell Studio for Target. Exclusive infant and home assortment feature modern bedding, table top and infant furnishings. The company is reinventing Fieldcrest assortment by increasing the value proposition through upgraded quality fabric and exceptional prices. The company will expand beauty offerings to include more natural and organic brands with nine lines from premiere brands, ranging from Dr. Bronners Magic Soap to Giovanni Organic Cosmetics.
- The company will continue to develop partnerships with emerging designers and introduce fresh and unique designs throughout the store such as next goal international collection called Jovovich Hawk for Target by designers Milla Jovovich and Carmen Hawk. In accessories the company will launch Subversive for Target, an eclectic array of bracelets, earrings and necklaces at an exceptional value by renowned jewelry designer Justin Giunta.
- The company launched three styles of reusable shopping bags across the chain providing an eco-friendly option that guests can feel good about using on their future visits to stores. The company will continue to be guests'' destination for seasonal businesses by offering a balance of unique trend rate offerings and must have basics for every occasion and change of season.

Fiscal 2008 Outlook

- In core retail operations the company is planning for sales growth to increase in the 8%-9% range, reflecting the continued contribution from new stores and an expected comparable store sales increase in the range of 2-3%. This outlook explicitly assumes that sales growth will be much better in the second half of the year as the company begins to cycle softer sales results of the second half of 2007.

- The company has plans in place that should allow holding growth in SG&A expenses to a high single-digit percentage increase, similar to or lowering than expected growth in sales. Given assumed pace of sales growth, the company expects to experience de-leveraging in depreciation expense which will naturally grow at low double-digit percentage pace.
- In credit card operations in 2008, the company expects to enjoy continued growth in contribution to overall earnings before taxes.

- The company expects delinquency rates to remain stable throughout 2008 at recent levels in the range of 4%. Net write-offs as a percentage of average receivables are not likely to rise much above 7%.
- The company expects to continue to create long-term value by executing share repurchase under the program announced last November. The company expects that under the right combination of operating results, liquidity and share price, it will have executed half or more of the $10 billion program by the end of 2008.

Key questions from the fourth quarter earnings call conducted by Target Corporation on February 26, 2008.

Jeffrey Klinefelter (Piper Jaffray): How are you thinking about that balance of comp gains between the first half and the second half ?

Douglas Scovanner: You can model this by taking a careful look at our sales pace in 2007. The sales strength will build throughout the year and will likely be much stronger, particularly in the fourth quarter as we cycle against much weaker numbers in the fourth quarter of 2007. So the base of performance is what is behind our comments, not some kind of macroeconomic judgment call. The make-up of our same-store sales performance between same-store traffic and growth in average ticket, I think that 2008 will continue a string of many years where the bulk of our improvement in same-store sales will likely be made up from growth in average ticket as opposed to same-store transaction counts or traffic.

Jeffrey Klinefelter (Piper Jaffray): Are you making any assumptions in your plan for a rebound of traffic in the second half of the year like some other retailers?

Douglas Scovanner: Traffic was weak in the fourth quarter so I would expect traffic to be much improved in the fourth quarter of 2008 than the trend going into it, again having everything to do with the 2007 base.

Jeffrey Klinefelter (Piper Jaffray): In terms of your sourcing initiatives, you are going to move to hard lines and look for opportunities for margin expansion there through TSS. Can you give an update on that and what the margin implication may be for 2008?

Gregg Steinhafel: We are not expecting any margin expansion in 2008. We are fully penetrated in Apparel and we are reasonably penetrated now in the bulk of hard lines categories, particularly in Home. The margin expansion gains in those categories, we benefited from over the last two or three years.

Jeffrey Klinefelter (Piper Jaffray): Are there any other sourcing initiatives on the horizon that you would highlight?

Gregg Steinhafel: It will be a continuation of our efforts to improve our cycle times and get greater control of raw materials in the sourcing process and do what we can to mitigate costs due to raw material input, currency issues, elimination of subsidies and things like that.