Welcome to Target Corporation's first quarter earnings release conference call. (Operator Instructions) I would now like to turn the conference over to Mr. Gregg Steinhafel, Chairman, President, and Chief Executive Officer.

Good morning and welcome to Target’s 2010 first 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 of Merchandising. This morning I will provide a high-level overview of our first quarter results. Then Kathy will discuss category results, share recent guest insights, and outline upcoming merchandising initiatives, and finally Doug will provide detail on our first quarter financial results, and our outlook for upcoming quarters. 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. Earlier this morning we announced that our first quarter earnings per share rose 30% from a year ago to $0.90, well above our expectations at the beginning of the quarter. As we previously indicated this performance is the highest quarterly EPS in our history, other than a fourth quarter and we are extremely pleased with the effectiveness of our strategy and proud of the superb execution by our team. Our comparable store sales increased 2.8% in the quarter reflecting the right combination of fashion and basic merchandise at outstanding prices, compelling presentation and in stocks, and outstanding services by stores’ teams. This is the largest comparable store sales increase in 10 quarters and represents a meaningful improvement from the fourth quarter of 2009. Comparable store transactions were up more than 2% for the…

Thanks Gregg, as we look back at the first quarter we are proud that we stayed the course during the past couple of years. While we remain flexible in our tactics, we never strayed from our expect more pay less strategy, our commitment to continuous innovation, and our goal of providing a superior shopping environment with great guest service. The dedication and discipline of our teams helped us successfully navigate the depths of the recession and today we’re more committed than ever to delivering a relevant and compelling assortment that surprises guests with its quality and value. While the economic environment remains somewhat volatile consumers have become much more confident in their ability to manage their spending and carefully select those discretionary items that satisfy their wants at a value that doesn’t break their budgets. To be sure there are many households that continue to feel the direct impact of job loss, and other forms of financial stress resulting from the recession. However a much larger portion of our guests did feel such a direct impact from the recession but instead, became extremely cautious in their buying behavior. Those guests paid off debt, created and stuck with budgets, and now they’re feeling optimistic enough to begin putting well-considered discretionary items back into their baskets. Many have begun to indulge in small ways with our discretionary assortment provides the perfect opportunity for them to indulge while feeling smart about the decision. We are seeing this trend particularly in home and apparel. Guests are starting to buy clothing and accessory items for themselves. Both men and women are freshening up their casual wardrobes, replacing basic work pieces, and picking up new shoes and accessories for spring. In our home category stagnant real estate markets are driving homeowners to make small, affordable investments…

Thanks Kathy, in my remarks today I plan to review our first quarter results in both business segments, and then I’ll provide my perspective on our outlook for the upcoming quarter and the remainder of the year. As Gregg outlined our first quarter financial performance was well ahead of our expectations, as both of our business segments well exceeded their respective profit plans. Beyond a comparison to our own expectations, our consolidated performance was also remarkable in comparison to our past results as our 2010 first quarter EPS of $0.90 was $0.08 higher than our results from continuing operations in any other non-holiday quarter in our history. In our retail segment sales increased 5.5% due to a 2.8% increase in comparable store sales and a similar contribution from our new stores. Year over year same store traffic trends were up 2.2% driving about 3/4 of our comparable store sales increase. By any historical standard, this is a very healthy traffic trend. Our gross margin rate was 31.3% of sales, half a point above last year’s strong performance and it reflected a new first quarter record. The year over year increase in gross margin was entirely the result of rate increases within categories. In other words the impact of sales mix on our gross margin rate was essentially neutral because the pace of sales in our higher margin categories was in line with the pace in lower margin consumable and commodity categories. We’ve experienced this kind of sales mix dynamic occasionally in the past, yet it has never lasted for very long because of the essence of our long-term traffic building growth strategy. Retail segment SG&A expenses were 20.6% of sales in the first quarter reflecting 30 basis points of favorable leverage. This improvement was primarily the result of continued productivity…

We’re very pleased with our first quarter performance and believe it validates our strategy. We are 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 effect consumer spending behavior, we’re optimistic about our ability to deliver strong results and to continue to create meaningful shareholder value over time. That concludes our prepared remarks, now Doug, Kathy, and I will be happy to respond to your questions.

(Operator Instructions) Your first question comes from the line of Bob Drbul - Barclays Capital

The first question I have is on the May results, on the May sales trends that you talked about, can you just maybe elaborate a little bit more in terms of what you think is happening in the back half of April for you and then sort of month to date, I guess from a broader perspective.

I would just tell you that as we’ve said all year its going to be volatile. There is going to be good months, bad months, and some ups and downs and I think we’re seeing an environment where that kind of volatility and unpredictability is just playing out in the consumer environment. We cited a number of consumer facing issues that I think are weighing on the minds of consumers and I think that from our perspective we’re going to continue to see this throughout the balance of the year. We’re going to find good weeks, bad weeks, good weeks, and bad months.

Separately as you know we don’t like talking about the weather, but in a period of time as short as the period you’re focused on, the weather can never be ignored and the weather wasn’t very good during the first two weeks of May. Now, I’ll quickly observe as I have many times before that over time on average the weather is average. So, you shouldn’t hear us talking much about the weather except when questions are asked about such a short period of time.

On the credit card business when you look at the spread of the charge-off rate versus the bad debt expense do you think that that spread is sustainable for the next several quarters.

I hope not because I expect and hope that the net write-off dollars will come down to approximate our quarterly provisioning within the next several quarters. So, in short, the provision in the quarter, the expense in the quarter give or take $200 million is well below the charge-offs in the quarter but I expect that our net write-offs per quarter will be closer to $200 million than $300 million beginning in the second quarter, beginning right now.

Your next question comes from the line of Charles Grom - JPMorgan

Let me ask Bob’s question a little bit differently, if receivables are going to be say $7 billion at the end of the year and presumably going, potentially meaningfully lower in 2011, what do you think the appropriate balance would be for allowance for doubtful accounts at the end of the year.

Well our allowance for doubtful accounts was 12.7% of receivables at year end, one quarter ago, and 12.8% of receivables right now. So essentially the allowance in the quarter moved directly in line with the reduction in receivables. If risks unfold during the year, consistent with the significant improvement that we’ve seen here in Q1 then of course that percentage will fall perhaps by a couple of percentage points at the outside. I still expect even under the most rosy outlook that the allowance as a percentage of gross receivables will still be a double-digit percentage by year end. Now having said that last year we saw pretty significant improvement in risks early and then the improvement in risks slowed down measurably so I think it’s a bit premature to be thinking about much of a significant change in our allowance as a percent of gross receivables from the current 12.8% figure.

When we last spoke you noted that Wal-Mart, their roll back in [inaudible] and the price gap was in the low double-digits in a number of items on rollback had increased modestly, I was wondering if any of these figures had changed and if you could kind of speak to the competitive environment particularly given that Wal-Mart’s taken another step down on their deep rollback campaign.

Well nothing has really changed since we talked. The rollbacks at Wal-Mart announced earlier were really for a period of 90 days so we’re in the early stages of that. The competitive environment continues to be aggressive but reasonable like it always is. Its generally very competitive and that continues to be so but we have not seen any meaningful change in what Wal-Mart has done over the last 30 or 60 days.

Your next question comes from the line of Neil Currie – UBS Neil Currie – UBS : First of all a number of retailers have been talking about increasing sourcing costs coming in the second half of the year and now this may apply more to next year as I’m sure your apparel sourcing is already underway for the rest of this year, but I wondered what your outlook was on sourcing costs coming out of Asia and also what your attitude could be towards passing through price increases.

So you are correct there are costing pressures coming through and its on a number of different categories from cotton to paper, copper, synthetic fabrics, even transportation. But what we have booked for the fall, or coming for this fall is we don’t have cost increases coming so perhaps late fall or if we start chasing products there might be some increases to that. But certainly in the spring I think we will start to see some of the cost increases come through. And we’ll have to look at each product category independently, how large the increase is, and then whether or not we will pass it along or try to reengineer the product to keep the retail and the margin where it is. But we will start to see some cost increases in receipts that will hit in spring, 2011. Neil Currie – UBS : And about employee expenses, you did a great job last year, the last 18 months really of reducing employee expenses, I wonder as sales recover or continue to recover whether you still feel that service levels are good or whether you might have to start increasing some labor hours in the stores.

The labor hours in the stores are going to be reflective of the performance and the sales within the stores, so we’re focused on expense management, productivity management, improving efficiencies within our supply chain but as the recovery, assuming the recovery continues to proceed and sales continue to improve we’ll had to add some variable labor within our stores to accommodate increases in sales. But its our intentions to still manage our expenses tightly and make sure that we are leveraging the sales performance that we do get. We’re not seeing any labor rate inflation at this particular point in time nor do we expect to see that for the foreseeable future.

We’re enjoying the double benefits of wonderful improvements in productivity inside our stores, and experiencing record high guest service levels and we intensively measure those service levels through the eyes of our guests.

Your next question comes from the line of Wayne Hood - BMO Capital

I had a question related to the credit business, what impact if at all will be the changes in the credit card offer that you have now, exclusively the Target card, on the third party merchant fees which has been about $100 million, if at all anything.

Well as you know we earn those third party merchant fees when our Target Visa cards are used anywhere else Visa is accepted, at Wal-Mart for example, and elsewhere, we profit from that merchant fee when the Target Visa card is used. Over time that certainly will reduce that line item will reduce in line with Target Visa balances but at the moment I would not expect that the yield impact, the impact on profitability and return on capital is likely to change.

And my second question related to credit is the late fee impact, you talked about if I think I heard you correctly, maybe 50% and I’m wondering as you roll that into 2011 and you get a full year of that, could we be looking at late fee income that might approximate $150 million or how are you thinking about as you roll that into the full year 2011 and your ability to offset some of that erosion.

Well in isolation of course the late fee income impact is just in line with what you’re laying out, your math is good. But of course the reaction of all card issuers, not just Target is to reduce the amount of credit available to the lower end of the file, to the lower end of the portfolio, where we can no longer recover sufficient late fee income to make sense out of lending. So the quite direct impact of the Card Act is to significantly reduce the availability of credit to American households, so, we’ll essentially offset that through underwriting and risk management by enjoying a better write-off and bad debt expense experience by no longer lending to pools of households with those kinds of risks.

Some of the success you’re seeing right now, essentially in apparel area, are you thinking about that rather than having these swing through a particular season, maybe adding them to the assortment on a more sustainable basis because demand is so strong, you’ve done that with some things in the past. I’m just wondering if there are things that we should be thinking about that you could bring in that’s more sustainable.

I think the beauty of the programs that we’ve brought in have been the fact that they are limited time and that we’re able to fit them to the season with the right esthetic as well as the right color pallet and apply them to the right merchandise. So if we talk about Liberty it was the perfect scenario in the spring. It was very optimistic, the colors were really bright and cheerful which lended themselves well to Liberty’s print and pattern. So we like the ability to be able to move through different designers or partnerships that really help us to keep our content fresh and so certainly when there are successes we analyze what worked and what didn’t and try to apply those to the future but in terms of keeping any of those on a long-term basis, we’re committed to having some designers that are long-term which you’re well aware of in our portfolio, but to keep that freshness going as we roll through some of the limited time offers.

Your next question comes from the line of Robby Ohmes - Bank of America/Merrill Lynch Robby Ohmes - Bank of America/Merrill Lynch: I just wanted to clarify given what your guests are doing are you seeing within categories I think you said they’re reaching more or opening up their wallets or whatever, are they up scaling their purchases, are they trading back up in price points within categories and then the second question I had is just on the remodels you have been doing even through the first quarter here, is there any negative impact on comps as the remodels are being done and also you commented on the performance being above planned, is the food lift exceeding expectations as well, the P Fresh component, or is it really home, beauty, electronics, video games, etc., that’s really doing stronger post remodel than you thought.

So the first question on whether or not we’re seeing trade up, all along we have had higher end product that has done well and an example would be C9 which is our highest quality in apparel and it has done well throughout the recession. But in general I would say there’s not a resurgence to trading up to more products like that, I would say that its more about guests feeling a little bit more comfortable putting an extra discretionary item in their basket. So we’re seeing those mixed trips where they’re buying needs and wants starting to increase. Your second question about remodels, and is there any negative to sales, when we start the remodel there is a negative impact to sales as we disrupt the stores, but that’s being offset by the sales that we’re experiencing once they are set. So there isn’t a negative. And in total all areas are up at or expectation or above which would include food as well as the others you mentioned like home and beauty.

We’ve previously disclosed that we expect the net impact of this remodel activity for the year to add about one full point to our reported same store sales performance during the first quarter. That net figure was between two and three tenths of a percentage point because the mix of course of stores that are under duress being remodeled is a much larger factor relative to the number of stores that have been remodeled and are producing the strong results we’ve described.

The last comment I would make, this is in aggregation and really these remodels, store by store situation in some cases we see very little disruption because of the fact that the store happens to be newer and there’s less reconstruction within the stores. In other cases in older stores or where we might have an older format or multiple entrances or multiple levels, the extensive nature of that reconstruction is more disruptive and we’ll see a fairly significant dip in the short-term as we really transform that store. But in aggregate we’ve seen in the neighborhood of about 5% disruption in 2009 and as we go into 2010 we’re getting better and better at this remodel process and have already seen our ability to reduce that aggregate disruption below what we experienced last year. But you might see some varying levels, you will see varying levels of disruption depending upon what store you go in and at what point of that remodel.

Your next question comes from the line of Colin McGranahan - Bernstein

First question, it looks like the units per transaction were up nicely, about 1.3%, but the AUR was off about 0.7% in the quarter and I just would have thought with the mix and some of the increase in discretionary categories that you would have been seeing maybe a little bit more positive, so can you help me understand the decline in average unit retail and what’s driving that.

Its really in a variety of categories and I think some of that is just lower retails where we have invested our cost savings into products. For example in kid’s we have lowered our retails in kid’s making it more affordable for our guests. There’s other categories like in our decorative home area or seasonal, less patio full sets and more casual seating which would lower the price point. And then there’s areas like stationary where we’ve added say $0.99 cards to our assortment just to offer a better opening price point as well as the high end Papyrus cards and so there’s I think some shifting between good, better, and best that we’re seeing and it varies, the reasons vary by category.

The other thing that I would add is that there is starting to be a little bit of a mix impact due to P Fresh now that we have 200 stores. We are going to continue to see in those particular stores a greater unit sale and a less price per item and that particular impact in the first quarter, it wasn’t significant but it would have shifted the overall numbers to be more closely aligned to being up slightly in terms of the units per transaction and essentially flat in terms of dollars, the amount of dollars per unit.

And then I know there’s some advertising mix shift going on here, 1Q to 2Q but if we look at 1Q it looks like your leverage per point of comp was about eight basis points of SG&A leverage per point of comp, is that something you think is a reasonable rate to think about and I guess another way of asking that would be where’s the break-even leverage given just run rate cost increases and what’s leverage look like above that.

Well there are a lot of factors that go into any quarter so I don’t like making the generalization out of any individual quarter’s results, but looking across the year give or take our point of SG&A leverage is in the range of a two comp, perhaps a little lower. So maybe we call that a one to two comp as the point of neutrality. And generally speaking this is a shorthand, all shorthand’s ultimately break down at a detailed level, but generally speaking half of our expenses vary with sales, up or down from that point and half are fixed and so you can calculate the basis points from those figures.

Your next question comes from the line of Dan Binder – Jefferies & Co. Dan Binder – Jefferies & Co. : Just a question on your comments around P Fresh and starting to see some cross shopping, I was just curious is that only in the stores that you remodeled this year or are you seeing it in the stores that you remodeled last year as well.

The primary increase is in the stores that we’ve remodeled this year. Just to refresh your memory of the 108 stores that we remodeled last year, virtually all of them, the reconstruction in those stores were focused on expanding the food side of the business. As we rolled into 2010 we are focusing more completely on the entire store. So the first two cycles of remodels that we just completed has the destination beauty, has home, has electronics, has video games, and some new visual elements throughout the stores and its in those stores that we’re seeing the improvement in cross shopping. Ultimately we’ll go back to those stores that we remodeled last year and we will be adding those elements as well and we would expect to see improvements in cross shopping in those discretionary categories once we complete those elements as well. But we’re very encouraged. Now again it’s a little early, we’ve only got 96 stores that we’ve completed in our first recycle this year but we’ve seen a nice bump in those categories as we’ve really focused on improving the experience and the visual impact and presentation in those stores. Dan Binder – Jefferies & Co. : And then so I assume its too early to say it might have a greater impact on sales than you’re originally thinking.

No within our modeling we’ve assumed all along that there was going to be a slight uptick in the discretionary spending. We laid that out for you in January, but it wasn’t very modest. We were not expecting an uptick and what we have seen so far this year has been very consistent what our expectations were.

This is also the context here is everything. This is a quarter in which our overall chain wide sales of higher margin merchandise moved in line with the chain wide sales of lower margin merchandise. Just as our experience over time in new stores has shown us when the chain is doing well, newer stores end up reflecting an exaggerated version of what’s happening in the chain. I think that our experience in P Fresh should be interpreted in that same context. Dan Binder – Jefferies & Co. : There was some legislation I guess that got passed in the Senate last week regarding debit fee cuts, I know its early but is there any sense as to how that might help you.

Well early is certainly the right word, that legislation has not passed the Senate. What you’re referring to I believe is an amendment that passed that is attached to some proposed legislation that has not yet passed the Senate and the Bill that passed the House has no parallel feature in it. Obviously we and all other retailers would benefit if that legislation were to pass given the hotly competitive nature of retailing in the United States. It is a virtual certainty in my mind that the vast majority of that benefit would be passed along to consumers, to our guests and customers of all other retailers. But it’s a long way from being a law at this point even though it’s a law that makes good sense to me from a public policy standpoint.

Your next question comes from the line of Deborah Weinswig - Citigroup

Congratulations on a fantastic quarter, in terms of the Kansas City test, are you seeing a greater frequency of visit from those cardholders in addition I would assume to a greater ticket and at what time would you decide to rollout the test further.

Most of the increase, substantially all of the increase is due to a higher frequency as opposed to a higher average ticket but nonetheless the increase is substantial enough to make it quite intriguing to consider relative to the fact that we are discounting sales that otherwise would have occurred in many sales that otherwise would have occurred at full price. Its also comforting from an analytical standpoint to see that the pace of sales increase seems to be sustained. So we’re not seeing any kind of drop off at all in year over year trends and now we’re of course beyond six months into the test in both Kansas City and San Antonio. Certainly we’ll be carefully looking at these results here in the short-term and we will need to decide very soon whether we would want to do something on a much broader scale or alternatively other test markets because of the lead times involved to get something like that launched in time for the holiday season.

And would you say that you’re surprised in the difference in experience between the San Antonio and Kansas City markets.

Well reasonable minds can differ on that one, that’s after all why we produced two very different tests but in hindsight perhaps it sounds like common sense that 5% off every item every day at point of sale seems to be quite sufficient to ultimately overcome any perceptions about purchase price as it relates to behavior of guests in our stores and 3% for whatever reason does not move the needle nearly to the extent that 5% does.

And then you mentioned I guess within a fairly short timeframe that all stores will have video games and TV wall, how should we think about the pace of rollout of destination beauty, home, and shoes in terms of reinvention, and why are the paces of rollout, why do they differ between the different reinventions.

So you’re correct the video game and TV wall will all be installed by the end of June and the simplicity with that is that’s its all contained within one area of the store so as that area is transitioning we will put that all in. Home and beauty are a little bit more disruptive. They are larger changes and more gondola movement and things like that and so that will happen with the P Fresh remodels so that the store is only disrupted once as they go through that remodel, they’ll do all of the rest of it together. And that would include the shoe reinvention which comes, starts in July in all remodels going forward.

And I don’t know if this question is necessarily the appropriate one to throw your way but I was in a lot of stores recently and during the tours the store managers and district team leaders have talked about store segmentation opportunities which I haven’t heard in the past, is that just kind of a new terminology or a new opportunity, maybe you can elaborate on that.

I think its more a terminology change than anything. We’ve been micro marketing and trying to customize our assortments for many, many years and we have. I think as broadly as apparel and as narrowly as making sure that shovels are in northern climate stores and not in Florida or Texas. As we have applied new technology and become more sophisticated we have really evolved into a segmentation model where we’re thinking more broadly about demographic, [cycle graphics], brands, and what is selling, urban markets, rural markets, and thing like that. So it’s a more holistic approach. This is a journey not a sprint. This is something that is going to take many, many years for us to really continue to refine and refine and refine but we’re committed to it. We’ve seen good results from our efforts thus far. And we believe it’s the appropriate thing to do. As you know you go into, food is very localized so as you go into P Fresh remodels you’ll see a food assortment that varies differently from Texas to San Antonio to Boston and that’s part of that segmentation effort.

Your next question comes from the line of Jeff Klinefelter - Piper Jaffray

On new store growth, kind of just thinking ahead 2011 and beyond, any movement at all yet in the commercial development activities and/or anything else, any other visibility in terms of going into some urban markets that might change your growth trajectory and then just international, any updated thoughts on your plans and timing on that front.

I’ll start with the store growth expectations and let Gregg address the international aspect of the question, no, our outlook has not changed and that means that this year we expect to open 13 gross, 10 net stores and we expect that this year 2010 will be the low point in our development activity but it will be a long, long time before we approach the kinds of development pace that was firmly in place here several years ago. So, that translates to who knows 20 or more stores next year perhaps, maybe some more in 2012 but generally speaking the large scale retail development in this country remains at very near absolute zero and so we are left to self-develop individual store sites that make economic sense.

And regarding the question international, no new news to report there. Really we’re doing the research and at some point in time we feel that we will be international but clearly in the near-term, in the zero to three, zero to five years, we’re focused on really, the most important priority we have is really transforming our existing large base of general merchandise stores and making sure that P Fresh and all the related reinventions and the visual elements gets implemented through the 1300 stores that aren’t super Targets, and so that is our highest priority right now and then as Doug mentioned we’re going to continue to open new stores as we have in the trade areas that make sense, with the formats that we currently have. And then three, we’re looking at really trying to be more flexible with our prototype and take advantage of opportunities where there’s great demographics and trade areas where our current formats simply just don’t work because they’re too large and we’re looking at down sizing Target to fit the environment where there are guests that have lots of money and love Target and so we’re focused on that as our third priority and then international would come well beyond that.

We have the capital to be able to grow much, much faster. We have the capabilities, team and otherwise to be able to grow much, much faster. There are hundreds and hundreds and hundreds of trade areas in the US, maybe even more than a thousand that are suitable for Target stores that don’t have one yet but this is all a matter of finding the right development opportunities that end up making economic sense to us, end up making sense on an overall basis in the communities we aspire to serve.

Your final question comes from the line of Peter Benedict – Robert W. Baird Peter Benedict – Robert W. Baird : Thinking about the improved sales and profits you’ve seen lately across both retail and credit how has it looked on a regional basis across the country, specifically I’m interested in maybe places like Florida, California, have behaved on this recovery versus the rest of the country.

Well as you know in both of our segments those two states in particular declined a lot more than others. Our sales in Florida for example went soft well before our sales went soft in the rest of the country. California I would put an asterisk, it is certainly a state, but it behaves in large part like three different states, where the economy and our sales and our credit card experience in the Bay area is remarkably different from the economy and our sales and our credit card experience in the inland empire and central valley, the latter geography far more challenging than any other part of the state of California and as challenging as some of the most challenging geography that we’ve operated in the country such as Las Vegas. At the moment trends in those areas are mixed candidly. Florida certainly has shown signs of stability and the beginnings of potentially of a recovery. The best I can say about some of those other geographies is they’re not nearly as challenged as they were and aren’t deteriorating, but by no means reflecting strength at this point.

That concludes Target’s first quarter earnings conference call. Thank you all for your participation.