Ladies and gentlemen, thank you for standing by. Welcome to the Target Corporation's fourth quarter and year-end earnings release conference call. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in the question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded Tuesday February 23, 2010. I would now like to turn the conference over to Mr. Gregg Steinhafel, Chairman, President and Chief Executive Officer.

Thank you and good morning and welcome to our 2009 fourth quarter earnings conference call. On the line with me today are Doug Scovanner, Executive Vice President and Chief Financial Officer and Kathy Tesija, Executive Vice President, Merchandising. This morning I will provide a high level overview of our fourth quarter and full year 2009 results along with our priorities as we enter 2010. Then Kathy will discuss category results, share recent insight in to how our guests are thinking and behaving in this environment and outline initiatives to drive our business forward in 2010. And finally Doug will provide detail on our 2009 financial results and 2010 performance outlook. Following Doug's remarks, we'll open the phone lines for a question-and-answer session. As a reminder we're joined on this call by investors and others who are listening to our comments today via web cast. Following this conference call John Hulbert and Doug will be available throughout the day to answer any follow-up questions you may have. Also, as a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, the most important of which are described in our SEC filings. We are very pleased with the fourth quarter financial results we announced earlier this morning. Our fourth quarter's earnings per share of $1.24 are well above the expectations we had going into the quarter and these very strong results clearly demonstrates the resilience of our strategy, the effectiveness of our operating model and the power of continued strong execution by our team. Our fourth quarter marketing and merchandising programs generated better than expected sales growth, particularly in the holiday season which combined with continued disciplined inventory management to deliver outstanding gross margin and profit performance. We also continued to deliver strong productivity in our stores…

Thanks Gregg. From the beginning of the economic downturn, we were determined to exceed our guest-evolving expectations while remaining firmly committed to our expect more and pay less brand promise. I believe our fourth quarter sales and traffic trends validate that we have achieved both of these objectives by delivering on a strategy that continues to resonate with our guests. In addition these results indicate that consumers are beginning to show signs of cautious optimism. Guest traffic continue to improve in the fourth quarter, up about 2% compared to 2008. Our improving traffic trend is very encouraging confirming what our guest research has indicated over the last 18 months. As the recession began, guest told us that they were still as loyal to Target as ever, but they were cutting back on discretionary shopping trips and focusing more exclusively on needs based trips. Today, guests are telling us that they are increasingly confident and are visiting more often and shopping more at the store. Once hesitant and even fearful, they now are taking pride in their new found financial discipline and their confidence is leading them to add a few more home and apparel items to their basket. This subtle change in guest behavior has significantly narrowed the sales gap between our discretionary and non-discretionary businesses. In fact, the impact of sales mix on fourth quarter gross margin was a very slight six basis points of headwind, much smaller than we've seen over time and less than we expect over the longer-term. We're particularly pleased with our performance over the holiday season which reflects our efforts to better align our marketing and merchandizing strategies to drive the business. We surprised our guests with new and enticing merchandize, provided a superior shopping environment and punctuated the experience with fresh marketing. Our…

Thanks, Kathy. In my remarks today, I plan to review our fourth quarter and full year 2009 financial results, paying particular attention to trends within the year. Then I'll provide a view of our 2010 outlook for both business segments and earnings per share. As you heard from Greg, our fourth quarter financial performance was well ahead of our expectations, primarily due to stronger than expected results in our retail segment and secondarily due to favorability in our income tax provision. Our fourth quarter earnings per share of $1.24 represented increase of more than 50% compared to last year and our full year 2009 EPS of $3.30 is only 1% below the all-time high that we posted in 2007. This is truly remarkable profit performance in light of the economic challenges and top line pressure we faced over the last two years. Specifically, our comparable store sales in 2009 compounded to a level about 5 percentage points below our 2007 results and comparable store sales in our discretionary categories have declined even more. The combined impact of these factors have the potential to genuinely corrode our profits and returns, but in EPS terms we were able to offset all but 1% of that pressure through a combination of gross margin rate improvement within categories, thoughtful expense control and prudent investment decisions. Fourth quarter sales exceeded our baseline expectations and we're particularly strong during the holiday season. As a result we ended December with a very little clearance inventory leading to a sharp decline in January clearance sales compared to a year ago. In other words within the quarter, we substituted higher sales of full price merchandise for lower sales of much less profitable clearance inventory particularly in January. This form of sales mix experience combined with the unusually small gross…

Our 2009 performance demonstrates our ability to effectively manage our business in the near term while positioning ourselves for the longer term. As we enter 2010, we are seeing positive momentum across our business segments and we'll build on that momentum by introducing newness and innovation throughout the year. We're confident that we have the right plans in place and the right team to implement them. While the pace of the current economic recovery will continue to affect consumer spending behavior, we're optimistic about our ability to manage effectively regardless of the economic environment, and to continue to create meaningful shareholder value overtime. That concludes our prepared remarks. Doug, Kathy and I will be happy to respond to your questions.

(Operator Instructions). Your first question comes from the line of Adrianne Shapira with Goldman Sachs.

So Gregg, if you could talk a little bit about the inventory planning. It seems as if Kathy had mentioned about, it seems some cautious optimism as it relates to discretionary categories. Could you help us think about how you're planning those discretionary categories as it relates to inventory as you've done such a good job?

We believe that we've clearly passed that environment where there is more downside than upside and we're more in, there's more upside than downside. So we plan our inventories in line with sales. We think that there are currently slightly more upside in our planning assumptions than originally thought and we are chasing some businesses because our sales currently are exceeding prior expectations, but overall we are in good shape. We are in line and we are going to continue to plan the discretionary categories conservatively yet appropriately which means slightly more aggressive than last year.

Okay looks as if the inventory is up about 7% overall, maybe give us a sense on the square footage basis how you ended.

Yes, it's just up slightly over last year, but it's down prior to 2007 year, so we are right in the middle and if you just look at a one-year comparison we probably ended last year a little bit too late and we were in a recovery mode far too long last year. We really didn't fully recover in our stores until about the March timeframe and we really set about this year to do a much better job of making sure that we are back in business and ready to go much earlier and that's really the result what you are seeing is that 7% increase over last year which we think is very appropriate and very targeted to the specific categories that we want to increase.

Doug if I could ask you as related to the reserve drawdown, it seems that we've now seen the second consecutive quarter, could you help us think about what a reasonable set of expectations are for continued opportunities to drawdown the reserve heading into 2010?

We don't think of it in the sense of a drawdown because the reserve has been established to cover the write-off potential of our existing portfolio. I think the question is at what replacement rate will our activity moving forward create bad debt expense, so it isn't really a drawdown that is the net of two very different activities. The reserve is appropriately sized for the risks we have today. Separately the portfolio continues to decline at a double-digit percentage year-over-year and therefore the bad debt expense moving forward will certainly have a component of reduction due to the fact that the portfolio shrinking, separately I think that the risks in the replacement receivables we're putting on the books are likely much lower. So net-net, yes that does mean that the reserve is very likely to be reduced during the year and will stay in touch quarter-by-quarter in terms of the outlook. First quarter, feel very, very good about the momentum in our credit card operations.

Great, and then last if I could just ask on the PFresh you shared with us at the analyst meeting and we understand it's early days but any update in terms of change of a trip behavior, it sounds if you are seeing some cautious optimism in discretionary categories, are you seeing PFresh an improvement in the crossover it hadn't seemed as if we had seen yet and are you starting to see some improvement on the margin there?

Well we're not seeing a meaningful change from what we shared with you when we are in Philadelphia. We are seeing strength across the board in discretionary categories and to what extent it's due to PFresh versus not PFresh, we're just excited to see that the consumer has more discretionary income and like we said in Philadelphia we believe that overtime our ability to crossell to those guests that are coming in for food and other necessities will improve and we'll develop the right kinds of surgical marketing programs that guest conversion in other parts of store whether it's a apparel or home.

Our outlook for PFresh is unchanged from what we laid out in detail in Philadelphia four or five weeks ago.

Your next question comes from the line of Deborah Weinswig with Citigroup.

Kathy you'll be happy to know based on our conversation after the PFresh meeting that I wanted to see all the aspects or invention, so I did go to Medina to see home, beauty, video games, TVs, thermos [ph], electric, how many of those stores will look like that by the end of 2010 because I was definitely very impressed.

So, we have about 350 stores between remodels and new stores this year and so those innovations will be in most of those stores throughout the year. There are some variations where we have gone back into Medina and done some upgrades and we'll come back and address that at a later time, but the ones you mentioned home, beauty, video games will all be in the stores, shoes which you saw in Medina, we will start putting in stores in July.

What was the penetration rate of Target cards in your stores this quarter?

It was certainly in the range of 5% or 6%; we'll come back with a precise figure.

Okay and then I know you said that you would come back to us in terms of an update with regards to what your seeing in KC and San Antonio, but are you seeing a higher penetration rate in those stores?

Sharply higher penetration especially in Kansas City, the 5% market sharply higher, sharply higher credit quality of the guests asking for cards, sharply higher pace of guests asking for the cards. The whole question in Kansas City is whether all of those benefits are sufficient to pull it forward [ph] the incremental markdowns associated with a 5% program on every transaction, every item every day.

Can you update us on inflation expectations, whether it's general merchandise or food and then also what percent of product is currently directly sourced and what's the additional opportunity as we think about gross margins for 2010?

Obviously the US economy has been through quite a rollercoaster as it relates to inflation especially in food products certainly in 2008 with inflation rates so high, retailers with a much higher penetration of foods on our own enjoyed a very strong benefit to their topline in contrast of food as measured by the federal government is in a significant deflationary mode has been for the last two quarters and retailers with a very high penetration of food certainly have toplines that are under a lot more pressure than our own as a direct result of this deflationary factor. Who knows where that's going to go 2011, 2012 but at the moment the year-over-year trends in food are clearly deflationary.

Our direct import percent has reached a high watermark of about 30% at the end of 2007 because of the high penetration in discretionary categories as those businesses contracted in 2008 and 2009. We saw some reduction in that overall direct import percentage. So we finished last year somewhere in the neighborhood of 26.5%, 27% and we expect overtime that that will move back upwards as the discretionary category performance strengthens.

Last question I just want to ask Greg is that we talked at the analyst meeting in terms of the opportunities to improve price perception, you also mentioned again today. It seems like you have done incredible amount of work and my hats off to you at the low price promise et cetera. What else can be done and is it just really a matter of time more than anything else?

Well, we really view this as a marathon and not a sprint and so we are going to continue to strike the right balance between expect more and pay less and we are going to continue to work hard to be not only right in reality, but work on the perception aspect and that's a series of marketing initiative that goes from one end to the other broadcast, print, special events, direct, receipt [ph] tape marketing, it's in store presentation and impact, it's content we put on end caps, it's really a holistic merchandising marketing effort that we have to more clearly communicating their credit for the great prices that we already have in store.

Following up on earlier question, $1.1 billion of sales on our cards in the fourth quarter represented 5.6% of our total sales, 5.6% penetration of our sales on our cards.

Your next question comes from the line of Charles Grom with JPMorgan.

In January the Home category showed a little bit of life, Kathy, just wondering if your expectations there for a positive comp in 2010 and then also wondering if you could share an update with us on February sales month, today your tone I have to say is drastically better than it was 3 months ago?

We are definitely seeing Home start to turn the corner. As I mentioned a lot of basic categories, we are seeing a lot of strength there but in addition, I would say some of our better invest product also there is pockets of strength, I mentioned the Giada De Laurentiis launch which is right on track on our forecast, we are thrilled with those results and Smith & Hawken, another high end brand is off to a great start this spring as well, but in some of our own brands like Room Essentials which is in the opening price point level, lot of strengths and building a lot of momentum there in those basic category. So we do see Home starting to turn the corner, but I would say it will be a long road throughout the year to get to where we want to be, but we feel like we are making progress.

With respect to you February question as you know at the beginning of the month we said we expected to be a flat to up slightly for the month and clearly we are on track to record our third consecutive month of positive same store sales performance here in February.

And then my second question, it’s with regards to the PFresh, at the analyst day you said by year three you thought gross profit margins in that category would be roughly 21%. You look at the grocers and let's exclude wholefoods from the equation; most of the grocers have GPM significantly higher than that. So, I am wondering one of you just being conservative or two, is there something structural that prohibits you from obtaining gross profit margins staying at 24% to 25% bucket longer-term.

I wouldn't call it structural, I'd call it strategic. We have a firm policy to be level priced with Wal-Mart locally on like items and the grocers you are referring to absolutely do not have such a policy. So in our zeal to execute that strategy, it drives a gross margin rate sharply lower than the average grocer because the average grocer can't compete with Wal-Mart on price.

And then last one for you Doug, in the Master Trust yesterday, there was a disclosure to eliminate about $19 million inactive accounts over the next couple of months. Is there anything that's going to impact the first quarter in credit from that initiative?

Directly no, but certainly indirectly we have been on a campaign for better than a year to eliminate risk in the portfolio from relatively inactive accounts springing forth, charging up and writing off.

Your next question comes from the line of Colin McGranahan with Bernstein.

I know the gross margin performance for the year was pretty spectacular and you want to maintain this, but as you think about just 6 basis points of negative mix here in the fourth quarter and then the moving parts around structural growth of food, the stronger growth of PFresh but that improving discretionary hopefully recovery in some of those categories that gains momentum through the year. Can you give us a little bit more help on your view of how those different impacts affect the gross margin, what you think the combined and mix effect might be in 2010?

Well, certainly, PFresh is a lead discussion point in this arena. The mix of sales driven out of those stores alone in isolation will likely reduce our gross margin rate for the year something in the range of 20 to 30 basis points in consolidation. Separately in the mix impact of a normalized set of growth rates ignoring those remodels in an average year in history has been another 20 or 30 basis points and a lot more than that for most of the last couple of years. So I think we are starting from an adjusted base that could be down 20, 40, 60 basis points before we talk about margin rate improvements within categories that are opportunities. Net net, we just don't think its prudent to think that anyone should take last year's all-time record high gross margin rate and believe that the net of these factors would increase in the middle of the road forecast. Certainly nothing we do will inhibit that from occurring, if we can do it while remaining price competitive with Wal-Mart and while continuing to produce spectacular values for our guest in these more discretionary categories. It could happen, I just wouldn't predict it. I'll reiterate that I don't believe the path to prosperity is paved with the idea of enhancing operating margins in our retail segment. I firmly believe that we'll get there by rejuvenating our top line performance while preserving our very strong margin rate structure top to bottom.

And then just a follow-up likewise on expenses again, a stunningly good performance in 2009 with only 10 stores opening in 2010, we've seen a mid-single digit if your comps are going to be 3% to 4%, mid-single digit 3% to 4% expense dollar growth, it'll will be pretty robust. Could you do better than that?

Obviously, we could do better than that. There are lot of puts and takes in expenses. Actually, one of the things that is a headwind, not a tailwind is the combined impact of remodel startup, new store startup and accelerated depreciation due to the remodels. So, that's actually something that will hold back expense performance. On the positive side, we have a set of incentive plans that are deeply intertwined on a pay-for-performance philosophy and it would require way over the top performance in 2010 compared to anything we're talking about today for incentive compensation expense in 2010 to approach what we recorded in 2009. So, there are some other pluses and minuses but on the combined front of the P&L impact of remodeling and new store activity, certainly new store activity in isolation will be a benefit, but the remodeling activity is larger in its expense component than the benefit of backing off with new store openings.

Your next question comes from the line of Bob Drbul with Barclays Capital.

Two questions, Doug, on the credit piece. First, when you look at the credit performance overall versus maybe what you expected six to nine months ago, is it fair to say that the credit business is getting more predictable every month? And then the second question that I have is a follow up to Chuck's question about the 19 million accounts. When you cut off the 19 million accounts, do you expect that to hinder at all your comp store sales performance in the back half of the year and did JPMorgan have any influence on that decision on the 19 million accounts?

The 19 million accounts will have no impact on our same store sales moving forward whatsoever. And even though I wasn't personally involved in any discussions with the Chase Card Services team I feel very confident in predicting that they would concur that that was an intelligent risk based decision. More broadly, our card segment went through a fairly scary period during the third and fourth quarters of 2008 and beginning with the first quarter of 2009 moved back into a more traditional era of stability and predictability albeit at quite heightened levels of risk. We've made a lot of predictions a year ago, some of them we ended up well exceeding the predictions we laid out, the forward-looking statements we laid out for our card segment by and large turned out to be spot on. We predicted $300 million plus or minus in write-offs in each of the first two quarters, that's exactly what happened. We predicted a little less than that in Q3, it's exactly what happened. Due to a little bit of an echo of expected write-offs from the terms change in May, we predicted we expected write-offs to tick up a bit in Q4, that's again exactly what happened. Looking forward, Q1 write-offs will look a lot like Q4 write-offs and I expect Q2, Q3, Q4 to be lower as the portfolio shrinks.

Your next question comes from the line of Robby Ohmes with Bank of America/Merrill Lynch. Robby Ohmes - Bank of America/Merrill Lynch: Actually Kathy I think this is probably a question for you. I was hoping you could maybe talk a little bit more about the guest surveys, I think the better guests behavior that you are commenting on at the beginning of the call, that you've seen recently kind of conflicts with the tumbling in consumer confidence that we're seeing out this morning. I was just curious if you could sort of tell us, is there something that Target might be seeing that's more unique to your customer demographics or we all cross our fingers and hope this consumer confidence number is a head fake. Any kind of further thoughts on what you're hearing from your customers would be great. Thanks.

Hard to predict if that was a head fake or not but what I will tell you is we've been talking to our guest over the past 18 months as I mentioned and we have clearly seen her describe her feelings going from a place of fear, how am I going to manage, how am I going to retool my budget, how am I going to make it all work, to a place of pride and confidence that she has weathered that stormed and has been able to make her budget work and now is selectively starting to come a bit more often and to spend a bit more money in some of the discretionary categories. Do I think that she thinks she is completely optimistic no, but I think she has a good handle on where her family is right now and that Target has great value and the right product that she is looking for which is translated in to a few more trips and a bit more spending in our discretionary side.

Yeah, I would just add that whether it's a head fake or not nobody really knows, but we expect the recovery to be slow and steady. But that doesn't mean that it's not going to be without its difficulties and speed bumps and setbacks. I think we're going to be in the kind of environment where there's going to be a lot of mixed signals. I think we're going to see two steps forward, one step back. We're going to see results that we really like and then I think that there maybe a slight pull back. So I think that the year is going to be one of those years where there is a lot of arrows pointing in a lot of different directions and it's going to take some time before you can really sort through all the complexities and the variety of dynamics that are operating in the marketplace. Robbie Ohmes - Bank of America/Merrill Lynch: And then just a quick follow up, on your comp guidance of two to four, the math to get from sort of zero to one trend now to a, lets say, we were going to try and get to the top end of that guidance to the four. Is it sort of 50% improvement in transaction size and 50% ticket or is there -- sorry, number of transactions and ticket? Can you tell me have they both improved the same or has traffic improved more? What the thinking is there overall?

We really don't know. We would be elated if we got to the top end of that number. Clearly where we remodel stores and we do PFresh, we're going to see a greater percentage of the sales being reflected in the traffic in those particular remodel 350 kind of stores. In the other stores we think it’s going to be more balanced between both traffic and ticket. But, again it’s pretty speculative. We're really not sure. It does move around from month to month.

Your next question comes from the line of Gregory Melich with Morgan Stanley.

Maybe Greg you started to answer it there, in the two to four comp plan for this year, what is the traffic versus ticket mix that's implicit in that and also the deflation part of it?

Well, again we have seen some once gains in traffic. So we think that that's going to be the primary driver of the same store sales but not exclusively. So it will be as it has been over many years, a combination of both traffic and ticket and we really don't know what ultimately it's going to sell in at but our best guess today would be more from traffic than ticket but a combination of both.

Historically, we've never got into a comp above four without contributions from both, and so I think that more likely than not it will be positive contributions from each if we get there.

Got it. And then second question, on the inflation you talked about how in food certainly there is a lot of well documented history there and we'll see when that turns. But if you go around the rest of the store, what are you seeing for your buy into the summer into the third quarter in terms of inflation or lack thereof in some of the other direct import categories like the apparel and home.

So at this point we have not finished sourcing all of fall but certainly through the third quarter and right now for that period, we're essentially flat in apparel and up slightly in home and we think that will hold for our fourth quarter as well. So a lot of talk about the raw materials, cost increases that has been happening but those today have not resulted in higher costs yet. We think perhaps by spring of 2011 we'll start to see some cost increases but for the fall really apparel being flat and home just up slightly.

I think we'll continue to see some deflation in hard line, particularly in electronics. It's a category that has traditionally been deflationary, moves around a little bit in terms of the level of deflation but I would expect something in a 2% to 4% range there and other categories will be stable.

And then a follow up on that. You mentioned the Bullseye rolling out 800 stores in your comments. That's the RadioShack kiosk, is that….

Correct, yes.

And when was that by?

October, we have 100 stores now and we will expand that throughout the year to 800 by October.

We have time for two more questions please.

You next question comes from the line of Wayne Hood with BMO Capital.

Doug, I had a credit question and then Kathy I had a question on general merchandise side. On the credit side Gregg, I know it’s ways out from potential changes in regulation and impacts late fees but if you looked internally, just to take the most onerous set of legislations that would impact you and you look at that at '11, could the income from late fees drop to $250 million a year or have you looked at it that way and all?

It certainly could and if that were to occur, then I believe that we and virtually every other competitor in the industry would adjust other features of the economic model or to be able offset it I think that I'm not sure this notion is understood inside that way.

Do you think you would be able to fully offset all of that?

Well if we didn't you'd see a shrinking industry which is why I think that the legislation is conversely anti stimulate.

And clearly there could be some time delay from the time that something is impacted or the time that said finally reaches their decision and the time that we can make those kind of adjustments. So there could be some short term implications but over the long term we're just going to readjust.

To Gregg's very point we will need to see what the Fed's regulations have to say but that could easily envision a scenario where that would adversely impact our credit card segment ROICs Q3 Q4 until we figured out how to continue to produce an offering that's viewed as quite valuable by our guests in the competitive environment. But that could happen.

And second question related to credit. Is the test that you have going on in the Kansas City now with the 5% kind of rebate if you will, are you finding that people are actually revolving on the card once they use it or are they paying it off and if they are just paying it off how does that impact the profit model of that initiative?

It's a great set of questions. Certainly there is a different set of behaviors for existing card holders versus new card holders. In each group there is sharply higher use and therefore sharply higher sales. The new card holders by and large are of sufficiently high credit quality that they have a much, much lower propensity to revolve and therefore as we sort through the pieces of this equation, we need to pay careful attention to both the retail segment impacts and the credit card segment impacts but net, net regardless of how we transfer price between the two segments there is clearly a compelling equation that we continue to analyze to figure our whether this is something that is sufficiently profitable to consider a rolling out on a much larger scale.

Kathy I just wanted to see on the Great Save event that you had do you plan on replicating that in the coming years and what did you learn that would roll back into the assortment now of key items that might have been selling that you need to put in the assortment and the source has been going now that you have seen some clearance in those items. I was a little surprised to see that for Kellogg Cereal for example. Why not just roll that in why it clearly just let it roll through.

It's a little early for us to determine if we will repeat the great save. We were very happy with the performance. As you know we have value events and have had them couple of times a year for many, many years and so I think that what the great save brought was slightly larger sizes as well as all around the store we had a lot of home products in there and apparel products or historically our value events have been commodities and food. So we are pleased with the events. The markdowns that we filled that space with that special product, some of them went back to the home to en-cap but not all of them would fit in the home just given the size of those packages. So we do consider it a seasonal event and clear it and move on to the next season which is now our Patio set.

Your final question comes from the line of Jeff Klinefelter with Piper Jaffray

Just quick question on e-commerce. What did that contribute to comps for the year? How is that performing relative to total sales and what are your expectations for that in 2010?

On a total year basis, sales patterns were fairly similar to what we experienced in the store where we were more challenged earlier in the year and we saw strengthening at the end of the year and when you wash it all the way through, it was pretty close to the store in general in terms of a modest or a slight same store sales decrease over the last year. But just like in the store side of the business, we're starting to see a nice recovery there and some better signs than we've seen in some time. So we're optimistic that that's going to grow at or greater than the total store growth this year.

Just adding a little color to Gregg's comment, please remember that our online business is much more heavily skewed toward discretionary product categories than many other online businesses.

That includes Target's fourth quarter and year-end 2009 earnings conference call. Thank you all for your participation.

Thank you. You may now disconnect.