目標百貨 (TGT) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Target Corporation's first quarter earnings release conference call.

Curing the presentation, all participants will be in a listen-only mode. Afterward, you'll be invited to participate in a question-and-answer session.

At that time, if you have a question, you will need to press star, one on your telephone. As a reminder, this conference is being recorded Tuesday, May 21, 2002.

I would like to turn the conference over to Mr. Bob Ulrich, Chairman and CEO. Please go ahead, sir.

Good morning.

Welcome to our 2002 first quarter earnings conference call. On the line with me today are Gerry Storch, Vice Chairman; Gregg Steinhafel, President of Target Stores; Diane Neal, President of Mervyn's; Linda Ahlers, President of Marshall Field's; and Doug Scovanner, Executive Vice President and Chief Financial Officer.

This morning, Doug will review our first quarter results, then Gregg will provide an update on Target's current business and outlook for the remainder of the year.

Gerry will update you on the growth and performance of our credit card operations and describe current developments in our Web-based strategies and supply chain initiatives. And, finally, I will wrap up our remarks and facilitate the question-and-answer session at the conclusion of our prepared remarks.

Now Doug will review our results, which were released earlier this morning.

Thanks Bob.

As a reminder, we're joined on this conference call by investors and others who are listening to our comments today live via Webcast. Also, please note that any forward-looking statements we make in our remarks this morning should be considered in conjunction with the cautionary statements contained in our SEC filings.

In addition, any reproduction or rebroadcast of any portion of this call is prohibited.

This morning, Target Corporation announced first quarter net earnings of $345 million, an increase of 35.9 percent, compared with earnings of $254 million in the first quarter of 2001.

Diluted earnings per share increased 35 percent for the quarter to 38 cents from 28 cents a year ago.

Target Corporation's revenues grew by 15.1 percent in the first quarter, driven by 18.6 percent year-over-year growth at Target stores.

Our consolidated gross margin rate expanded 73 basis points in the first quarter to a rate of 32.28 percent, as gross margin rate improvements at all three divisions were partially offset by the mix impact of growth at Target, our lowest gross margin rate division.

Our consolidated SG&A expense rate, which excludes depreciation and expenses related to our credit care operations, improved 27 basis points compared to last year, principally reflecting the benefit of more rapid growth at Target, our lowest expense rate division. By division, expense rate

improved at Target and Marshall Field's and was unfavorable to last year at Mervyn's.

Depreciation and amortization expense grew 13.1 percent for the quarter to $289 million, reflecting increased capital spending

for new stores and the necessary distribution and systems infrastructure to support this growth. As you know, during the first quarter we were acquired to adopt FAS-142 related to accounting for goodwill and other intangible assets. The effect on the quarter was a $2.6 million reduction in amortization expense,

which had a negligible favorable impact on EPS. Additionally, we have completed our annual task for impairment for goodwill and indefinite

intangibles, and concluded that these assets, about $150 million in total, are not impaired.

Total interest expense, that is, our net interest expense as reported on the P&L, combined with the payments made to holders of our securitized receivables for periods prior to August 22 last year, increased $16 million from $119 million in the first quarter last year to $135 million in the most recent quarter.

This increase is due to higher average funded balances for both our new store investment and credit card receivables growth, partially offset by a lower average rate. Our effective income tax rate for the first quarter of 2002 was 38 percent, unchanged from a year ago.

Now let's briefly review our results by segment. On a combined basis, pre-taxed segment profit for the three divisions rose 32.8 percent from last year's first quarter to $762 million. These results were driven by exceptional growth in pre-tax profit of 35.1 percent at our Target division to $678 million from $502 million a year ago.

Mervyn's pre-tax profit also increased in the quarter in line with our expectations, up 8.3 percent to $52 million. And at Marshall Field's, pre-tax profit rose $9 million, or 36 percent to $32 million.

Other expense, that is, the expense recorded outside our three segments, increased to $71 million from $45 million a year ago. Most of this increase is due to the first quarter reformatting of some of our non-qualified pension benefits. While this action was economically neutral to both the company and the participants,

it did change the timing of recognizing expense. More specifically, it accelerated expense into the first quarter, which otherwise would have been recorded over a number of years.

Now let me turn to the balance sheet. Over the past 12 months, net assets grew by about $3.5 billion, principally due to growth in net property and equipment and accounts receivable, as we continue to invest

aggressively in new stores and distribution facilities and in our credit card operations. We funded this growth through a combination of net growth in our shareholders' investment of about $1.5 billion and through an increase in debt and equivalents of about $2 billion.

Inventory levels for the corporation at the end of the first quarter were 6.3 percent above prior year levels on a total basis,

primarily reflecting new store growth at Target, and essentially unchanged from the prior year on a comparable store basis. The growth in inventories of $271 million overall was more than fully funded by the $400 million increase in accounts payable, resulting in payables leveraging of 81 percent at quarter end, compared to 77 percent last year.

In our credit card operations, we ended the quarter with gross accounts receivable of $4.2 billion, an increase of about $1.5 billion from the same point last year. During the quarter, we added about $500 million in Target Visa receivables

against the backdrop of typical seasonal reductions in the rest of our portfolio.

Consistent with our past conservative reserving practices, particularly during periods of substantial growth in receivables balances, we reported bad debt expense in the quarter well in excess of our net write-offs. As a result, our allowance for

accounts at quarter end was $297 million or seven percent of receivables.

Overall, the contribution from our credit card operations in the first quarter was $115 million, up from $110 million in the same period last year.

We continue to expect our credit card operations to be a strong, positive contributor to our 2002 earnings. Specifically, assuming a continuation of current trends in delinquencies in write-offs, we continue to expect our year-over-year

contribution from credit to increase sharply in future periods, resulting in up to five cents per share of EPS associated with Target Visa for the full year.

In summary, we're very pleased with our first quarter performance and remain optimistic about our prospects for earnings growth both in the current year and in the future. Today, the median EPS expectation on first call for 2002 is $1.80,

representing about 15 percent expected growth for the year. In the current economic and competitive environment, this seems to be a reasonable estimate. Consistent with our guidance three months ago, we continue to expect stronger year-over-year growth in quarterly earnings per share in each of the first three quarters of 2002 and modest, if any, EPS growth in the

fourth quarter due to the exceptionally strong performance we achieved in the fourth quarter last year.

For the second quarter, the current first call median EPS expectation is 35 cents per share. We're comfortable with this estimate and believe it is in line with our outlook for the full year.

Now Gregg will review Target's results and current business trends, as well as our plans and outlook for the remainder of the year. Gregg?

Steinhafel

: Thanks, Doug.

Driven by exceptionally strong top-line growth, Target Stores delivered outstanding results in this year's first quarter. Total revenues increased 18.6 percent to $8 billion, reflecting substantial contributions from both our new stores and our credit card operations.

Additionally, comparable stores sales increased 6.8 percent, reflecting essentially equal contribution from both average ticket and

.

Target's pre-tax profit rose 35.1 percent in the quarter to $678 million and

pre-tax profit margin grew by 100 basis points to 8.4 percent. This increased profitability was attributable to gross margin rate expansion, apparently due to improved markdown performance and expense rate improvement reflecting strong sales numbers.

The strength of our performance in the quarter is a testimony to Expect More,

Pay Less brand product. Our guests continue to be attracted to our differentiated trend-rate merchandise, our convenient, easy to shop stores, our unique marketing and lifestyle presentations, and our exceptional value.

For the quarter, we enjoyed continued success with a number of merchandise programs that were introduced or expanded in the past year.

For example, Waverly in domestic, Eddie Bauer in sporting goods,

women's apparel, and

in cosmetics.

We will continue to enhance Target's brand to a brand introduction as the year progresses

in electronics, and

in apparel have just arrived in our stores in the past few weeks.

Physical science, apparel for young men and boys, is expected set in our stores in time for back to school.

We will be reintroducing

as a wear to work alternative in both men's and women's apparel in the fall season. We also remain keenly focused on price and value throughout our merchandise assortment. As you know, we have

intensified our efforts to benchmark opening price points against key competitors and rebalance our mix of good, better, and best products as appropriate each season.

have great merchandising, exclusive brands, and unique designs create excitement for our guests. We do not underestimate the importance of being priced right.

We are confident that Target's commitment to Expect More, Pay Less, provides more reasons for our guests to shop at Target and drive increased sales and profitability as well.

During the quarter, Target opened 13 SuperTarget stores, and 15 net new discount stores. At the quarter end, we operated at 1081 stores in 47 states, including 75 SuperTarget locations.

Though still a relatively small percentage of our overall store base, SuperTarget remains an important component of our future growth.

In the next six months, we plan to open an additional 17 SuperTarget stores, and by the end of 2004, we expect to have approximately 150 locations. To improve operational efficiency and consistency, we've continued to integrate

SuperTarget into Target's existing systems and processes. This allows us to leverage our expertise, present a single, clear brand image, and reduce expenses. Similar to our efforts at our general merchandise stores, we are keenly focused on being competitively priced, and we continue to differentiate our grocery offering

through new brand introductions, such as Einstein Bagels and Ming Tsai, and through the expansion of our own Archer Farms and Market Pantry brands.

We are pleased with our progress and results. We are fully committed to expanded food assortment, and believe that SuperTarget positions us well to meet more of our guests' shopping needs and gain greater market share.

While we are obviously pleased with our first quarter performance, we continue to plan the remainder of 2002 more conservatively, especially in light of the softer sales trends we have experienced in the past four weeks.

Our comparable store sales for the total year are planned to increase around 4 percent, while comparable store sales growth in this year's fourth quarter

is expected to be somewhat softer given the exceptional strength of last year's fourth quarter, and the unfavorable holiday calendar this year. Excluding the favorable impact from our credit card operations, we are planning for modest profit margin expansion in the second quarter, and modest profit margin compression in the second half of the year.

While we can certainly envision a scenario in which we exceed these plans, as we did in the first quarter, we believe it is appropriate for us to plan our business conservatively. In the past, we have demonstrated the success of this approach, and we believe it continues to be the formula for achieving our corporate earnings growth objective in the future.

Now, Gerry Storch will give you an update on our credit card business, Target's supply chain efforts, and the corporation key commerce initiative. Gerry?

Thanks, Gregg. As Doug mentioned, our credit card operations, and more specifically, the Target Visa, continued our strong growth in the first quarter.

We exceeded $2 billion of Target Visa receivables in the quarter, and surpassed 6 million Target Visa cards issued. We continued to make progress toward our objectives of deepening our relationships with our guests and driving increased sales and profits.

This quarter, we are beginning our installation of the smart chip readers at every point of

sale in our stores. And we expect to complete the installation by the end of the third quarter. Additionally, we are collaborating with a number of our team merchandise vendors to deliver value to our cardholders through the smart chip.

As an example, we expect to begin offering electronic coupons in the fourth quarter of this year.

We firmly believe that the Target Visa, and our initiatives in guest relationship management provide an important element of differentiation for Target that will deliver meaningful financial benefits in the future. The credit quality in each of our portfolios remains very good, and is getting even better, reflecting the beneficial mixed impact of growth in Target Visa.

Year to date, our overall delinquency and net write-up trends are consistent with anticipated levels. We continue to expect substantial growth in Target Visa receivables, amounting to an expected $1.5 to $2 billion this year, and we remain confident that our credit card business will be a strong contributor to our overall earnings growth in 2002.

Now, a brief update on our Internet initiatives. We are meeting our expectations for traffic and sales. Compared with a year ago, sales on our sites have almost doubled, and traffic is up significantly. Our partnership with Amazon.com is progressing smoothly. We continue to work with Amazon to integrate their technology and our merchandising into an updated Target.com Web site.

The new site, which is scheduled to launch at the end of July, provides guests with a more convenient and more efficient online shopping experience.

By building a common platform that includes each of our brands, guests can easily search for, and purchase, merchandise from Target's and Marshall Field's assortment,

as well as any item from Amazon's music, books, and video assortment. We believe this expanded functionality and merchandise offering is an exciting development and believe it has positive implications for both our guests and for Target Corporation.

Finally, for many years, Target has recognized the importance of investing in systems and technology to manage our inventories, shorten our lead times, and

increase our productivity. As a result, we have built one of the best supply chains in retailing. But, in order to maintain this competitive advantage, we know that we must continue to be innovative, and leverage our knowledge and expertise.

Consequently, we are pursuing initiatives that help us deliver higher, and more consistent, in-stock levels, remove weeks, or even months,

from the supply chain process, and reduce costs. Previously, we have told you about a program focused on ensuring that top 1,000 most-wanted items are in stock for our guests. Six weeks ago, we expanded the top 1,000 program to include an additional 1,500 items.

We are currently enjoying among the highest levels of in-stocks in our company's history, so we know the program is working.

To support our new store growth, and improve service levels for all of our stores, particularly during peak volume time periods,

we are collectively investing in new distribution center capacity. We plan to open two additional regional distribution facilities this year, bringing our year-end 2002 distribution center count to 16, including one in

Warehouse. We will continue to expand capacity to support our supply chain initiatives, and by year-end 2005,

we expect to have 25 distribution centers, including three in port warehouses.

We are also redefining our relationships with our vendors by more directly involving them in our business planning and processes. Through partners online, which is analogous to Wal-Mart's retail link program,

and joint business planning initiatives, we are providing vendors with greater visibility into our sales trends and replenishment needs, by store.

By establishing a common set of objectives and an appropriate system of measurements with our vendors,

we expect to improve both the speed and the flow of inventory flow, which, in turn, will deliver greater satisfaction to our guests, and increase our sales and financial performance as well.

Other initiatives such as item segmentation, previous

agreements and speed sourcing also continue to be important elements of our supply chain strategy.

We continue to look for

applications of technology and new approaches to resell fundamentals that will further strengthen our competitive position. And we are confident that our efforts will contribute to positive growth for many years.

Now Bob has a few final comments.

Gregg and Gerry have just explained, we're very pleased with our performance in the first quarter and believe that we're well positioned to deliver strong earnings growth for the remainder of the year. We're confident in the strategy of our core businesses and excited about our growth opportunities for new Target stores, new Super Target stores, Target Visa and Target Direct. We firmly believe that the investments we're making today in technology and in our supply chain

will help us better serve our guests in the future and will allow us to generate substantial value for our shareholders, as well.

That concludes our prepared remarks. And now Greg, Diane, Linda, Doug, Gerry and I will be happy to respond to your questions.

Thank you. At this time we'll begin the question and answer session. If you have a question, simply press star, one on your

telephone touch pad. At any time you may withdraw your question by pressing star, two. And if you're using speaker equipment please raise your headset prior to pressing star, one. One moment while the questions register. And our first question comes from George

of Goldman Sachs.

Thank you. Terrific quarter.

Just looking for a little more color on the Super Centers, Greg. You opened a lot of them last year. What has been the sales and initial ROI performance of last year's large class relative to previous classes and relative to your expectations?

And what are food comps like in the Super Centers? Are you continuing to drive higher margin non-food comps, as well?

Yeah, George, we continue to meet or exceed our internal forecasts and goals for our new Super Target stores.

And in our mature Super Targets are exceeding - the mature store sales in our mature Super Targets are slightly exceeding the mature store sales in the Target general discount side of the business.

We're working hard on the expense formula. We're working hard on the gross margin part of the business. And we're seeing positive improvements on both aspects of the margin and profit equation.

Could you comment specifically on last year's openings and how that class is doing relative to previous classes?

Well, last year - in total last year's new stores are doing, I would say fine. We have some stores that are doing slightly better than we expected, a few stores doing slightly worse. But on average, they're doing about what we expected, George.

George, this is Doug. I think the right way to categorize it would be to say that the year one performance of last year's openers was better than the year one performance of prior year's openers.

Thank you very much.

Thank you. And our next question comes from

of Midwest Research.

Good morning. Gerry, I was wondering if you might talk a little bit about the supply chain initiatives, particularly with the returns and

what we might see over the next couple of years as far as better inventory turns, better in stock gross margin top line, things of that nature.

Well, everything that we do is designed to achieve multiple objectives. The first one is that - first and foremost is higher levels of in stocks for our guests.

So we're heavily focused on that. Now, the second one is to do that though, with even less inventory than we have today. We think we can do that by segmenting our products more precisely and managing the highest volume most important

more aggressively than the others. And finally, we want to speed up the supply chain. And we have a number of initiatives

underway to do that, basically to shorten the lead time from vendor all the way through to consumer. And we think we can do that, as well. So we are excited about the opportunities that remain.

Are these benefits something that we see accelerating this year or is it more as you get out a couple years?

I think this is an area that I would view as a continuous improvement area where we'll get better and better each year.

Thank you.

Thank you. And our next question comes from Tom Thompson of Thompson Siegel.

Thanks very much. I wonder if you could elaborate on the trends in the credit revenues and expenses. Your receivables portfolio was up

Mr. Thompson?

I think he got cut off. But Gerry, go ahead.

We're very please with what we're seeing. You know? Almost every metric in our credit business is at or better than our plans. And that includes revenues, expenses, everything. So we're very pleased with what we see.

OK. And our next question comes from

of

Hi. It's actually

. Can you comment on your product mix, that is the mix - the percentage split between soft lines and hard lines and how that might have changed over the past several months?

And my second question is your inventory positioning of seasonal goods, how does that stand currently?

In total, our sales mix is approximately three quarters hard lines and one quarter soft line. And that has not materially changed over the last couple of months, although as you know, our seasonal businesses in total have been softer than our consumables or our hard lines businesses.

What was the second part of your question?

The inventory positioning of seasonal goods.

Fortunately, we have built into this year's inventory substantial liquidity in our apparel, in our lawn and garden businesses and some of our seasonal sporting goods.

And even though sales have been soft in those categories we still believe that our inventories are in relatively good shape.

Great. Thanks a lot.

Thank you. And our next question comes from David Cumberland of Robert Baird.

Good morning. Greg, could you please talk about the impact you have seen and expect to see related to Kmart in terms of their store closings, liquidation sales, in stock shortfalls and potentially moderated pricing stance? Thanks.

This is Bob. I'll comment on that real briefly. Frankly, it has a very, very minimal impact on us. And it has nothing at the current time because they're still open - there will be a very, very slight positive as those stores close. The Kmart demographics are actually below those of Wal-Mart.

And we would expect more positive to go to Wal-Mart than ourselves simply because of the demographics of the guest and because there's more overlap with the Kmart and Wal-Mart locations.

Thank you.

Thank you. And our next question comes from Daniel Berry of Merrill Lynch.

Good morning. Question for Gerry. Could you elaborate a little bit more on the ramp up in warehouses? Is that just for import warehouses ? Is there something else?

No, it's both. It's both primary capacity in our regional distribution centers, which are distributed all over the country as well as the addition of two additional import warehouses to give it a total of three. So we can store slower moving imported goods farther upstream,

allocate them more precisely based on need. But the bigger number is that increase in just the traditional regional distribution centers, reflecting primarily the growth in the chain but also some of the strategies that we have to hold that merchandise at the distribution centers rather than in the stores.

Does this free up back room space in the stores?

That by itself should. Obviously, other things we do may go the other way. It is a long term goal of ours to free up backroom space in the stores. And we're making some progress on that.

We're not really counting on that. And this whole ramp up in warehousing is that we have a huge effort on staying in stock.

And we've decided that some of our problems have been having adequate capacity in our warehouses. And sometimes we've played it kind of close to the edge in the past. And the worst that could happen is after we build these up we'll have a little excess capacity. And we'll be able to slow down a little bit future expansion.

So the whole thing is an investment in our future in stocks.

Would this mean your inventory turn would go down a little going forward?

No, no, no, no, no, no, by treating those things back in the

warehouse and then flowing it out to where they're selling we would actually expect inventory turn would go up somewhat. It's far less efficient to keep inventory in a thousand plus locations than it is in 20 distribution centers.

Thank you.

Thank you. And our next question comes from Emily

of Sanford Bernstein.

Good morning. Can Gregg give us some more detail on what product categories and apparel specifically drove that business in the quarter and which ones were disappointing? And then the second question is on Super Target.

At what number of Super Targets would you consider self-distribution a cost effective approach to that business? Thanks.

Well, as it relates to our apparel business in the first quarter the strength is really in our ladies' business and our footwear business.

Intimate apparel was okay. And our men's business was softer than what we had hoped for. And as it relates to self-distribution in SuperTarget, we really don't believe that self distribution is appropriate for us now or in the foreseeable future simply due to the number of SuperTargets we have and the geographic dispersion of those stores.

But we'll continue to look at that and perhaps, you know, further into the future we'll reconsider that as SuperTarget builds up. But at this point in time, we have no plans to self distribute.

We are doing some distribution ourselves in the more traditional types of categories like cereals and dry groceries.

So that we are doing, but no anticipated near-term plans for the produces and the meats and so on.

Thank you.

And our next question comes from

of JP Morgan.

Good morning, everybody.

Doug, I was wondering if you could comment on your outlook for cap ex

over this year and next year, as well as cash flow given the distribution center build-out?

Yes. First, a quick comment on the distribution center build-out. This is a continuation of a strategy that we've employed for the last year and a half or two years. And so you really won't even

find that as a change in the numbers moving forward.

Ninety days ago we expected cap ex this year to be somewhere in the range of $3.3 to $3.5 billion. That's still a very good estimate. Our 12-month trailing cap ex is a little over $3 billion,

but not quite up into that range. I think that's preliminary probably a pretty good range for us to think about for 2003 as well, $3.3 to $3.5 billion.

OK. And cash flow, your outlook for free cash over those time periods?

I'll answer that question in two parts. First, let's talk about our business, excluding the credit card operations, and deal with credit cards separately. In 2002,

I would expect, excluding our credit card operations, we would be very substantial -- very substantially profitable. And from a balance sheet standpoint, would need a very modest amount of increase in debt, a much lower increase in debt, than the increase in our equity accounts

to be able to fund our operations, reflective of improved balance sheet ratios and improved cash flow coverage ratios.

Separately, as Gerry pointed out earlier, we still expect to grow our credit card operations investment in receivables by $1.5 to $2 billion or perhaps more this year,

and so this figures would simply add on top of my previous comments.

OK. And then just a follow-up, you mentioned the -- or Gregg mentioned the same-store sales plan for the year is four percent.

I was wondering how that would layer in by quarter, as well as what magnitude of profit margin decline you're looking for in the second half -- thanks.

As you know, we just completed a quarter with substantially more than four percent same-store sales, 6.8 percent at Target Stores.

So our expectations for the balance of the year would be a bit less than the four percent figure. I would expect reasonable comp store sales performance in the second and third quarters, in light of the fact that the base periods are not particularly abnormal. I would expect lighter, smaller sales performance --

comp sales performance at Target in the fourth quarter because of the terrific performance that we need to hurdle that we turned in last year.

Thank you.

And our next question comes from Deborah Weinswig of Salomon Smith Barney.

Good morning.

A few quick questions. One, could you discuss the performance of SuperTarget during the quarter and any changes either in the prototype

or merchandise mix we might see going forward given the relationship with Super Value?

SuperTarget performance, as Gregg indicated earlier, is very strong and it's doing somewhat better than

. We expect that to continue.

We've spent a lot of time refining our formula, and we don't see any major changes in our mix. The only

happened is we continued to put strong emphasis on our private brands, our

and market pantry, to make sure that we're having good representation of both opening

and moderate-level price points. But no major switches.

OK. And then Gregg had mentioned 150 SuperTargets by yearend '04. I think previous guidance had been 200 by 2010. How should we look at the roll-out in light of 2004 expectations?

At this point in time, we're really thinking more like 400 SuperTargets in the area of 2010.

Great. Thank you very much.

Sherry, are you there -- excuse me,

, are you there? Do we have any other questions?

Yes, and our next question comes from

of C.S. First Boston.

Good morning, everyone.

Two questions: one is, is there any thought to concentrating where you put SuperTargets to create some geographic concentration going forward? And number two, is there any limit, do you think, how far the Target operating margins could go up in an optimal circumstance?

And, conversely, is there a point at which you would cap them out and start

to the consumer?

Currently, as it relates to the geographic concentration of SuperTarget, we already are geographically dispersed. So there really isn't -- it really doesn't make sense for us to start --

to just concentrate our efforts exclusively in one part of the country when we're already fairly broad. I think...

You know we are looking at where we can establish nodes that have greater density around the country. We think there are several places based on where we built them in the past where we can achieve a much greater concentration into what we have today as we grow.

Thank you.

, this seems to be a recurring question. As you know, our 12-month trailing operating margin at Target is eight percent.

We're very comfortable with that margin level. We remain very price competitive with Wal-Mart pricing locally on identical items at the same level as Wal-Mart, as you know. We're not attempting to engineer some kind of change in the gross margin rate for good or for bad.

We're simply trying to continue to working the merchandising equation in a very consistent way that we have in the past, and the margin rate will fall out of that.

I continue to struggle for finding a way to answer your question.

I'm not trying to make you work any harder than you are -- thank you.

Thank you,

.

Thank you.

And our next question comes from

of Neuberger Berman.

I was just wondering

how credit contributed to Target's operating profit, if at all. Based on your indication of total, I'm assuming it wasn't much of the increase.

Well, as you know, we don't disclose quarterly figures. But I can certainly assure you that given everything that has been disclosed,

it's a very clear and concrete conclusion that our profits from merchandising increased at a sharply higher rate at Target for the quarter than our profits from credit card operations. There was a good solid increase in the credit card operations, but the total was obviously driven by our merchandise sales.

OK.

Thank you.

And our next question comes from

Prudential Securities.

, looking at the next year, if Kohl's does get those 30 stores opening, I'm just wondering the hit we should be thinking about initially if they get those up and running to Mervyn's.

Is it around 10 percent? And if you weight that, would it mean that the comp out there would be affected by one or two points as you look out to next year? I know it's not a big piece, but perception is nine-tenths of the rule here.

Well, first of all, we do obviously face goals in a lot of existing markets. As you know, we've been in

, we faced them in Michigan and in Colorado and in Texas. And so we've had a fair amount of experience with them. We have a very strong market presence in California.

We're doing some additional things to sort of strengthen that market. But, obviously, with an entry of that size, there will be some impact.

In general, we find that the impact on a real close nearby location is somewhere in the area of 10 percent. When you look at the whole state and its impact,

yeah, you're probably talking one or two percent ballpark.

OK, thanks

.

Thank you.

And our next question comes from

of RBC Capital.

Hi, thanks very much.

You mentioned men's apparel sales in the first quarter being a little more sluggish than the rest of the group.

Maybe you could talk specifically about an area within men's or a brand where you saw that performance slow down a little bit -- thanks.

Well, actually, men's wear basically saw it across the board. And we believe that second half of the year will show improvement. We've got a lot of new, you know, initiatives underway by bringing back

in

men's and the introduction of

. And that

we really think will help put us back on track in the men's business.

And it has been sort of a company-wide phenomenon, and it's also been somewhat soft at Marshall Field's. It's also been somewhat soft at Mervyn's. I'm assuming that the industry is

way.

Thank you.

Thank you.

And our next question comes from

of Thompson Siegel.

Hi.

My specific question on the credit card operation before getting cut off the last time was, when do you expect the expense growth, primarily that bad debt expense growth, to subside

so that the income contribution from that operation will begin to reflect the large asset and revenue growth? Thank you.

I would expect that to occur in the second or third quarter of this year.

Thanks very much.

And at this time, I'm showing no further questions. Then, I would like to turn the meeting back over to you, Mr. Ulrich.

Thank you,

. I thank all of you for your participation, that concludes our corporation's first quarter earnings conference call. Thanks for your support.

Thank you for participating in today's teleconference, and have a good day.