目標百貨 (TGT) 2003 Q2 法說會逐字稿

Hello and welcome to the Target Corporation's second quarter earnings release conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, you will be invited to participate in a question and answer session.

If you have a question at that time, press star 1 on your telephone.

As a reminder, this conference is being recorded, Thursday, August 14, 2003.

I would now like to turn the conference over to Mr. Bob Ulrich, Chairman and Chief Executive Officer.

Sir?

Good morning, welcome to our 2003 second quarter earnings conference call.

On the line with me today are Gerry Storch, Vice Chairman, Doug Scovanner, Executive Vice President and Chief Financial Officer, Diane Neal, President of Mervyn's, Gregg Steinhafel and Linda Ahlers.

This morning, Doug will review our second quarter results.

Then Gregg will provide an update on Target's current business and outlook for the remainder of the year.

Gerry will have the growth and performance of our credit card operations and describe current developments in our web-based strategies and supply chain initiatives.

I will wrap up our remarks and we will open the phone lines for a question and answer session.

Now, Doug has the results released earlier this morning.

Thanks, Bob.

As a reminder, we're joined on this conference call by investors and others, 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.

Any reproduction or rebroadcast of any portion of this call is prohibited.

This morning, Target Corporation announced second quarter and year to date results.

For the quarter, net earnings grew 4% to $358 million.

Producing 39 cents of diluted earnings per share.

In line with the 39 to 40 cents per share guidance we shared with you in early July.

Total revenues in the quarter grew 9.1% to nearly $11 billion on the strength of an 8.7% increase in consolidated merchandise sales and continued year-over-year growth in our credit card operations.

So far this year, the top line of our P&L has grown somewhat faster than the bottom line.

In a few minutes, I will describe the recent trends of each of our three segments in order to shed light on the year to date sales and profit relationship and in order to provide our outlook for third and fourth quarter performance.

First, however, I will explore certain components of our balance sheet and characterize the recent results and near-term outlook for our credit card operations.

Our inventory position at second quarter end reflected a clean, seasonal transition in all of our businesses.

Year-over-year inventory levels grew about 8.7%, essentially in line with our sales growth.

Compared to this time last year, about 72% of our net overall inventory growth has been funded by a parallel increase in accounts payable.

Growth in other long-term assets continues to reflect growth in prepaid pension costs and the natural accounting effect of some of our hedging activity in the current Capital Markets environment, among other factors.

Over the past 12 months, we have continued to fund our overall growth in new stores and related infrastructure through a combination of growth in net debt, which is up about $1.8 billion over this time, and growth in retained shareholder investment, up about 1 percent or $1.5b over the same period.

During the quarter, we surpassed $10 million in shareholders investment for the first time our history.

Turning to our credit card operations, we ended the quarter with net accounts receivable of just over $5.3 billion, in line with balances at the end of this year's first quarter and about $1 billion higher than this time last year.

Our annualized, net portfolio yield in the quarter was 11.2%.

Lightly favorable to the 10 to 11% range provided in our recent guidance.

And overall, quite robust, especially given today's relatively low funding costs.

Delinquencies in both our Visa and propriety portfolios remain stable and annualized net writeoffs for the quarter were 8.9%, within the 8.5-9 % range we expected and communicated to you previously.

We continue to expect that our future net write-off experience will remain within this range.

In summary, the performance of our receivables portfolio continues to be stable, predictable and appropriately profitable.

Gerry will delve more in our credit card strategy in his remarks in a few minutes.

Turning back to our core retail businesses, let me focus on our year to date results in a bit more detail and set the stage for understanding our outlook for the rest of the year.

In our Target stores division, we've successfully cycled the exceptional store gains.

In the first half of last year, we delivered a 35% increase in segment profit on the strength of a 5.6% increase in year to date same store sales.

On top of those remarkable prior year results, Target has delivered a year to date 7% increase in segment profits so far this year, on growth of 1.9% in same store sales.

Looking forward, we will benefit from much easier top line comparisons in the second half of 2003 because our sales performance last year began to soften in July.

For reference, Target's same store sales performance in last year's third quarter was up only 1% in comparable store sales actually declined 1.1% in the fourth quarter.

Despite these soft prior year sales figures, we drove very healthy segment profit growth of 21% in the third quarter and a more modest 8% increase in the fourth quarter.

Tying all of this together it means we expect much stronger top line growth at Target for the balance of this year and we expect those sales to generate better profit trends than our year to date results, especially in the fourth quarter.

At Mervyn's and Marshall fields, both our sales and segment profit results are below prior year levels.

These began in the fourth quarter of last year and we don't believe they are likely to change until at least that time this year.

In summary, we expect our performance in it these businesses will remain difficult in this year's third quarter, but we're optimistic we will successfully turn the quarter to begin showing year-over-year progress at the bottom line in the fourth quarter.

Overall, the picture I've outlined today envisions only modest EPS growth in the third quarter, followed by a much more robust fourth quarter performance.

Specifically, our internal plans for the third quarter reflect a more conservative outlook than the current First Call consensus of 34 cents.

As profitable growth at Target will be partially offset by continued challenges at both Mervyn's and Marshall Field's.

Combined with our considerably more optimistic outlook for the fourth quarter, we believe that the current median First Call estimate of $2.01 for the full year appears to be reasonable today.

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?

Thanks, Doug.

Overall, our second quarter financial results at Target stores met our expectations and we're pleased with our performance.

Comparable store sales increased 2.7% during the quarter, representing reasonable growth in this environment.

Against a solid 4.4% increase a year ago.

This comp store sales growth was driven more by strength in guest traffic during the quarter than by average transaction amount.

Our total revenues in the second quarter increased 11.3% to $9.5 billion, primarily due to the contributions from new stores and our credit card operations.

We, again, managed our inventories well during the quarter and we are very comfortable with both the quality and level of our inventories as we head into the second half of this year.

Target's second quarter pretax profit rose 5.7% to $749 million, while pretax profit margin declined by 42 basis points to 7.9%.

Our gross margin rate in the quarter was slightly unfavorable to last year, reflecting higher markdowns compared with 2002's exceptionally low level, partially offset by improved markup due to better sourcing.

Target's expense rate was unfavorable to the prior year, principally due to a lack of sales leverage.

During the second quarter, Target opened four SuperTarget stores and net 20 new discount stores.

At quarter end, we operated 1,191 stores in 47 states, including 106 Super Target locations.

As we move into the second half of 2003, Target's commitment to our Expect More Pay Less strategy remains as strong as ever.

We fully recognize that our guests satisfy their wants through our offering of trend right merchandise, exclusive brands, design partnerships and Target's pleasant shopping environment.

And our guest satisfy their needs with our reliable selection of consumables and commodities, our exceptional prices and our fast, convenient service.

Maintaining an appropriate balance in this equation is what helps Target maintain its competitive advantage and deliver superior financial performance.

As a result, we routinely fine tine our offering as we anticipate and adapt to our guests' demands.

For example, to reinforce our differentiated strategy and satisfy our guests' desire for newness this fall, Target is introduce introducing an exclusive line called [INAUDIBLE], which fuses Isaac's uncompromising style with Target's great prices, hand bags, shoes, hats and gloves with prices ranging from $19.99 for woven tops to $69.99 for outerwear.

It's designed to appeal to the [INAUDIBLE] of our core demographic and embodies the true meaning of 5th avenue meets Main Street.

We're enhancing our line of children's clothing this fall through our launch from Osh Kosh.

The offering, available in sizes infant through 6 years, combines durability and comfort with fashion excitement and a convenience of mix and match.

Best of all, with prices less than $15, the items in this collection are priced well under the competition and provide another compelling reason for mom's to shop at Target in our home and entertainment categories, we're also offering excitement and newness.

In home, Target is once again partnering with Todd Oldham to provide a collection of unique furnishings and home accents, tables, chairs, area rugs, clocks, lamps, decorative pillows, bedding, towels and school supplies.

We've expanded our back to college effort with a simpler line of basic items called room essentials.

Next month, we will introduce a line of personal electronics called Virgin Pulse, which will be exclusive to Target and Virgin Mega Stores.

Each of these initiatives, partnerships, exclusive-owned brands and trusted national names supports our commitment to differentiated merchandising and stimulates guest purchases of discretionary items.

Though it is still early in the season, we're encouraged by the initial favorable trends we are experiencing in our back-to-school and back to college sales of apparel and home decor and remain optimistic that they will continue to strengthen as we move through the third and followed quarter.

Our nondiscretionary businesses compliment this strategy and drive guests to visit our stores more often.

For more than a decade, sales of consumables and commodities have consistently outpaced the rest of the Company and this outperformance continues year to date.

Given the current economic environment, we are pleased with our steady increase in guest traffic and we remain vigilant in our long-standing practice of matching Wal-Mart's prices in local markets on identical items.

As we continue to focus on delivering value to our guests in the future, we firmly believe that we can simultaneously cater to our guests' needs and appeal to her wants.

These objectives of differentiation and increased frequency are complementary, not mutually exclusive.

Now, let me turn our outlet to the second half of 2003.

We remain cautious in our belief about the macroeconomic environment, we expect Target sales growth to strengthen from our modest first half levels as our comparison to last year becomes easier.

This is particularly relevant in this year's fourth quarter as we compare against last year's 1.1% comparable store sales decline.

Specifically, for the balance of the year, our comparable store sales are planned to increase in the range range of 34% with total revenue growth in the low teens.

Pretax profit, including the favorable impact of our credit card operations, expected to rise essentially in line with our top line growth when viewing the third and fourth quarters in combination.

When viewed on a stand-alone basis, we expect pretax profit to grow modestly slower than revenues in the third quarter and expect pretax profit to outpace revenue growth in the fourth quarter.

This outlook incorporates our expectations that we will continue to experience both the pressure of deflation on our top line and the benefit of deflation in our cost of goods, although both to a lesser degree than in 2002.

While we understand the potential challenges that our conservative planning may cause if consumer spending strengthens, we believe we have demonstrated the success of our disciplined approach in the past and feel that it is prudent in the current economy.

We have confidence in the agility and experience of our organization and believe that our team is well-equipped to capitalize on sales trends as they emerge.

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

Gerry?

Thanks, Gregg.

As Doug mentioned, our credit card operations continue to strengthen.

Our relations with our best guests, while also producing strong growth in the second quarter.

Net credit revenues in the quarter grew 23% and pretax profits rose nearly 25%.

Net accounts receivable were approximately $5.3 billion at the end of the quarter, in line with our plans.

And we continue to expect average receivables for the full year to increase approximately $1 billion.

The Target Visa is the primary vehicle propelling this growth.

As our guests continue to be attracted to the loyalty programs on the card.

These programs include the reward of earning certificates for 10% off of future Target purchases and the benefit of a higher rate of contribution to designated schools through Target's Take Charge of Education initiative.

In fact, thanks to the generosity and loyalty of our credit card guests, our contributions to schools have just exceeded $100 million since the program inception.

The credit quality in each of our portfolios remains good.

Consistent with our expectations and plans and we are pleased with the performance of our credit card operations.

We are also excited about the sales building potential created by our gift cards.

Gift cards continue to provide a significant opportunity to enhance our brand and drive incremental sales.

Consistent with our focus on newness and differentiation, Target annually unveils innovative gift card designs that appeal to a broad array of guest segments and satisfy a variety of gift-giving occasions.

This fall, Target is introducing a back to college two-part gift card, allowing parents to reload value remotely to their college student's gift card as the student uses the available balance on Target shopping trips.

This element of convenience is one more way we fulfill our promise to our best guests and achieve desired financial results.

Now, I brief update on developments at Target Direct.

Earlier this week, Amazon announced that its e-commerce partnership with Target would be extended by two years to 2008.

Under this agreement, Amazon.com powers the Target store on its own web site and also provides services, including technology, order fulfillment and customer service for target.com, marshalfields.com and mervyns.com.

Our decision to extend the agreement reflects our satisfaction with the service Amazon.com is providing to our guests and the confidence in the continued growth and success of our online initiatives.

This confidence stems from the significant progress we continue to make toward achieving our three Target Direct objectives.

To generate profitable sales, to build upon our initiatives and guest relationship management, to further strengthen guest loyalty and to drive increased business through better integration of our direct and store marketing efforts.

Compared with a year ago, sales in the second quarter grew by approximately 60% and traffic increased by 43%.

Although this business is still too small to be meaningful to the overall results of the Corporation, we continue to improve our profitability at Target Direct, both by enhancing product margin and increasing operating efficiency.

And guest relationship management, we are actively pursuing opportunities to identify more of our guests, understand their needs and wants and develop more programs targeted to appeal to specific guest segments.

We're on track to identify approximately 30 million of our guests by year-end and we are expanding testing our planning to launch several guest-focused inniatives that will drive incremental business.

Examples include direct marketing through mail and e-mail campaigns, customized communications in the store and targeted offers for commodities, mom and baby and registries in the wedding and baby registries.

We continue to focus on leveraging our credit card operations and database at management resource, to deepen our relationships with our guests and give them more reasons to shop at Target more often.

For example, we just recently completed our chain of wide installation of smart chip readers at kiosks and every point of sale in our stores and starting the coupons with the Target Visa cardholders.

This provides an important element of differentiation for Target and we believe guest relationship management will contribute meaningful financial benefits in the future.

We are also making tremendous strides in integrating our online, direct mail and in-store efforts.

At Target, we continue to enhance our online assortment by leveraging the best of our in-store merchandise and showcasing items by key designers and exclusive brands.

We consolidated our wedding registries into a common registry, accessible from the Target and Marshall Field's stores and on our web site.

We've updated the content and look of our Marshall Field's catalogues to be more consistent with our brand and this fall, plan to make an additional 50,000 items that are available today in our Marshall Field's stores available for sale on our web site, as well.

Making our unified web site one of the largest retail sites and largest private registries on the web.

We believe these initiatives at Target Direct allow us to deliver our guest preferred online shopping experience more often and more consistently.

In addition, they provide a platform that fuels more guest visits to our stores.

Finally, our supply chain continues to be an area of major emphasis and substantial strategic investment.

Specifically, we are focused on supporting our new store growth, increasing our productivity and improving our store service levels.

As we have previously indicated, we're significantly increasing our distribution capacity this year to improve the level of service to all of our stores, particularly during peak volume time periods.

During the second quarter, we added two regional distribution centers, including one each in California and Iowa.

And opened our first east coast import warehouse in Virginia.

This summer, we opened two additional distribution facilities,Pennsylvania and South Carolina.

Completing our distribution expansion for 2003 and bringing our year-end total to 22, including our three import warehouses.

This incremental capacity is contributing to our improvement in in-stock levels.

In-stock levels for the store overall and for the highest volume items in particular are among the highest we've ever recorded.

This fall, we're transitioning over 2,000 dry grocery items like cereal and dry goods from wholesaler supply to our own centers.

This change is expected reduce cost and increase the frequency and reliability of store deliveries.

Another significant advancement 2003 is the implementation of our supply chain tracking system, letting Target supply chain partners view the location of our inventory online, no matter where it is in the supply chain.

This new system will help us identify potential obstacles in our supply chain more quickly and will facilitate appropriate actions to address any challenges.

We will also benefit our in-stock position and help improve -- help remove excess inventory from the pipeline.

Finally, we're piloting our new automated receiving technology in several distribution centers this year.

By eliminating a meaningful portion of manual [INAUDIBLE] from the receiving process, this system will help us substantially reduce inventory carrying costs and labor expense in our DCs.

Over time, we expect this system will greatly increase our receiving accuracy and have a meaningful impact on supply chain productivity.

As evidenced by the efforts I've just described as well as other initiatives, including CPFR, precision timing and trapping, speed sourcing and RFID, we continue to look for new applications of technology and new approaches to retail fundamentals to further strengthen our competitive position.

We're confident that our efforts will contribute to continued profitable growth at Target Corporation for many years.

Now, Bob has a few final comments.

In summary, we're pleased with our second quarter results and remain comfortable with our outlook for the remainder of 2003.

We're confident that we have ample growth opportunities to build new Target discount stores and super Target stores for many years and are excited about the potential to strengthen guest relationships and drive sales and profits through our initiatives at Target financial services and Target Direct.

We 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 we believe in total, these efforts will allow us to continue to generate substantial value for our shareholders over the long-term, by continuing to meet or exceed our financial objectives of average annual growth in EPS of 15% or more over time.

That concludes our prepared remarks, now Doug, Gregg, Linda, Gerry & I will be happy to answer your questions.

Thank you, if you would like to ask a question, press star 1.

To withdrawal, press star 2.

Our first question is from Emme Kozloff with Sanford Bernstein.

Hi, thanks.

I've got two questions.

First, given your exposure in California, to what degree are rising worker's comp expenses impacting your SG&A costs?

And I'd assume bankruptcies would be a higher percentage of the mix in writeoffs in the Visa portfolio, given lower write-off amounts, but given the levels higher it steams imply higher bankruptcies in the portfolio.

Can you explain this?

What should we expect in terms of the mix going forward?

Thanks.

Yes.

First, our overall corporate revenues in California represent 15 to 20% of the total revenues.

California worker's compensation matters have been of serious concern here for more than a decade and remain so today.

But in the aggregate, California worker's compensation is not a very important factor in explaining our SG&A trends.

We have been properly and amply reserved for worker's compensation matters throughout time and remain so today.

In terms of your question on the Target Visa, it is a fact that bankruptcy, the effect of bankruptcies, is a much larger issue in our Visa portfolio than in our propriety portfolios.

Our incidence of bankruptcy is about what one would expect relative to other equivalent credit quality, bank card portfolios.

The adverse effect in a relative sense of each bankruptcy is higher and the issue is driven by the fact that nearly all personnel bankruptcies involve an account that is at or very near its overall limit and given the green nature of our portfolio, the average balance is much, much lower, so, today, what we are experiencing is the adverse effect of an all the way to the limit write-off relative to a portfolio that's earnings based on a much, much lower relative balance.

Okay.

Thanks.

Thank you.

Our next question will come from Daniel Barry with Merrill Lynch.

Good morning.

Can you comment more on the super Target operation, specifically Wal-Mart the other day said their comps in food are running in the high single.

Are you seeing a pickup in food comps?

And also elaborate more on the EDLP efforts.

Our business at super Target is quite healthy and in our food sales, you know, in aggregate are growing at a faster rate than the -- than the company -- company's growth rate in total.

So, we're, you know, we're very pleased with the -- with our super Target's performance.

As it relates to EDLP, we have now cycled all but three of the promotional vehicles we ran last year in Super Target.

So, we remain very committed to everyday low pricing, we're competitive with Wal-Mart, day in and day out and we expect that our food comps will continue to exceed the overall growth rate of the company in the fall.

But did you see an actual pickup in comps if the last few months?

Well, the -- the overall food comps have -- have outperformed Target throughout the entire spring season.

We have not seen an appreciable increase in our food business the second quarter versus first quarter, no.

Because there has been a pickup in inflation in food.

Are you not passing it through?

Well, as we got into July, when our comparisons were easier relative to last year, the whole chain picked up and food did, too.

So, now food is running sort in in the high single digits.

Okay, thanks.

Thank you.

Our next question will come from George Strachan with Goldman Sachs & Company .

Thanks and -- I got kicked off for a few seconds.

Lately there seems to be investor concerns out there that commodity pricing is under pressure and your exposure to commodities is increasing.

You've addressed this to some extent.

Can you give us more insight into how it plays out as a dynamic within the overall mix of the store?

And how you see it playing out as you continue to increase exposure to commodities over the next 12 months?

Yeah, we -- we have not seen we have not seen, George, a material change in the pricing environment, as you know, the commodity business, consumable business, as always been very competitive and remains so today, but we've not seen any major changes in pricing position from Wal-Mart or the other competitors.

Our mix has been, for a long time, we've grown our consumables and our food business at a faster rate than the -- than the company's growth rate in total and this is -- it's not a new phenomenon and part of our expect more, pay less strategy.

We're very focused on making sure we're satisfying the needs of our guests through our commodities and consumables business.

It's very important to us.

At the same time, we're focused on our differentiated strategy and the combination of those two businesses continues to yield a very profitable and -- and healthy margin mix and we expect that to remain that way in the future, even though we still will grow the consumables at a slighter faster rate than the company in total.

And the expand effect came from the comments from Costco regarding Sam's Club, we're not seeing that in our overall commodity mix.

And presumably kicking out some of the higher margin inventory -- categories as you go forward, expansion of commodities on the floor, next year, you don't see a detriment in acceleration in detriment to margin as a result of ha?

We're not kicking out any higher margin categories.

It's simply that normally if we have a comp store increase in the mid -- in the mid-single digits, it might be certain categories in apparel, whatever, increasing in a 3 to 4 bracket and commodities are more in the high single digit bracket, but we're not throwing out a major --

The numbers that Bob just talked about accurately reflect the compound growth rates rates over the last decade in this chain.

We've averaged a 5% sales performance, 4 full point lower in the noncommodity businesses and sharply higher in commodities across the last decade.

It's part of the overall formula that drives traffic to our stores and helps us gather market share on a profitable basis.

And throughout the period, Doug is discussing our margin is up.

Sharply up.

Thank you for the clarifications.

Thank you.

Our next question will come from Bob Drbul with Lehman Brothers.

Good morning.

Two questions.

First, Gregg, when you were talking about the frequency of the traffic in your Target stores, can you give us numbers in terms of what you've seen in the last few months as the focus on consumables has been implemented?

And can you go a little bit on the gross margin, as consumables become a bigger portion of the mix, how much will you be able to offset that from continued benefits from the global sourcing?

Thanks.

First part of your question as it relates to transaction count, we have -- we have seen over the -- the first half of this year, increasing in -- on mature stores, transaction growth in the 2 to 4% range.

So, that's healthier than what we've experienced in the past.

And again, you know, the gross margin -- you know, conversation, is we're fully prepared to deal with the margin implications with growing this side of the business.

We're working very hard in a number of areas to reduce acquisition costs, as you know, both domestically and internationally, through AMC and other -- and other relationships we have with -- with our importers.

We are -- we are also working hard at lowering our markdowns and expanding our differentiated assortment.

We are expanding our commitment to private brand, both food and nonfood, that will help offset some of the negative consequences involved with growing consumables at a faster rate than the company.

We see that we're very able and capable to manage that equation profitably.

Another way to look at the equation is that the penetration of our overall business in the commodities and consumables categories increased 1 full percentage point per year in the last decade.

It's unlikely to change over the next several years, in my opinion.

Okay.

Thank you.

Thank you.

Our next question will come from Mark Miller with William Blair.

Hi, good morning.

I hope you could talk about the expense trends you're seeing in the second quarter?

If I look at the Target pretax margin being down 4 to 8, my guess is from an operating expense standpoint, you were down 30ish, somewhere in that neighborhood.

Given that the comps came in in the Target division 2.5, 3% and it accelerated through the quarter and was ahead of your plan, I guess I'm surprised you didn't do a little bit better on expense trends.

Can you talk about what some of the more challenging aspects of the operating expenses are right now?

Thank you.

First of all, for some context, the quarterly operating margin at Target was the second best in our second quarter history.

Second only to last year's phenomenal performance and way, way ahead of any other year in the chain's history.

So, in an absolute sense, I'm fully satisfied with our operating margin rate at our Target stores division.

During the quarter, you're correct, we did not leverage operating expenses at our Target stores division and the principal issue is that hourly wages and benefits at our stores, as a percentage of sales, increased during the quarter because even though the comps were in the range you described, the combination of those comps in conjunction with continued pressure on unit pricing, means that -- we handled more and more units for the revenues that -- that we generated and the unit flow is what drives work in the stores.

So, while we're through this -- until we're finished it this current period of deflation, we will likely continue to incur some pressure driven by wage rates and benefits as a percentage of sales.

Okay.

Doug, that's helpful.

Other question is, can you give some color on how much the markdowns impacted the gross margin trend?

In other words, if we took out that factor, how much a lift would you be seeing in the Target gross margins from a higher IMU and all the things you're doing with sourcing?

Thanks.

Excluding the effect of Mark downs year-over-year, our Target stores division gross margin rate would have increased 50 to 100 basis points due to all other factors combined, including the adverse affect of mix.

And then the markdown experience you expect in the second half to be clear, third quarter, are you expecting still adverse markdowns?

Or will it be favorable?

And it sounds like fourth quarter you're looking for significant improvement, is it s that correct?

Certainly looking for significant improvement in the fourth quarter.

I think it's too early to tell exactly what direction.

It becomes more of a neutral factor, still perhaps a bit adverse in the third quarter, but for sure, the fourth quarter effects, we expect to be quite beneficial.

Thank you very much.

Thank you.

Our next question will come from Wayne Hood with Prudential financial.

Yeah, Doug, my questions relate to Mervyn's and Marshall Field's.

I wondered if you stripped out the credit operations for Marshall Field's, did they actually lose money in the quarter?

And was Mervyn's profits down about 65% if you stripped out credit?

Is that fair assumptions?

Credit card operations at those two businesses remain very healthy.

The key issue in describing profit trends in the credit card businesses at Mervyn's and field's is the amount of receivables declines.

The portfolio yields have been stable at relatively high rates, higher, of course, than our Visa portfolio.

As you know, we don't disclose the precise numbers by quarter, but it is certainly a reasonable assumption, based on everything I've just said, that more than 100% of feel's profitability in the quarter was driven by credit card operations.

That being said, if -- I wish they could discuss the plans for the back half of the year, that they have under way or changed to make sure that the first half trends don't continue.

And if Bob could discuss some of the strategic options that are available to him, if in fact the second half turns out to be like the first half and how -- how much of a sense of urgency do you have right now versus a year ago in trying to get the businesses back on track?

Well, obviously both Mervyn's and Marshal Field's are not happy with the first half results and have been working on a number of months on a number of initiatives and for competitive reasons, we're not going to get into major discussion of that on a conference call of this type, but if you see some enhancement of content efforts, special events efforts and also some marketing efforts, we -- I would like to note, also, that last year, the results were pretty decent through the third quarter and the fourth quarter really fell apart.

So, we anticipate that we should do a little better in those two businesses certainly in the third quarter and certainly significantly better in the fourth quarter.

Hopefully the initiatives we have going will work to give us a positive beyond that, but we're not counting on it in our current forecasts.

So, I mean -- I don't want to beat this to death, but if it doesn't work, what would be your plan "B" to try to get them back on track?

Well, obviously we're -- as I said, we're working very hard, we're benchmarking, we're reinventing things, as you heard us talk about before.

We have a huge initiative arm with the strait street store and also in the top 15 Marshall Field's stores, half of the chain's volume, very significant, excuse me, efforts in that whole area and we're confident that we're going to get a significant improvement.

That and we remain committed to the two divisions.

If you go out for years and years and years, who knows, the whole world could change.

We think there's viability in a place for the middle market and for the premium end of the department store business.

Again, we're not happy about.

It we're working extremely hard and we do see some encouraging signs in some of our initial experiments, but we can tell you a lot more in 90 days.

All right, thanks, Bob.

Thank you.

Our next question will come from Bruce Missett with Morgan Stanley.

Good morning.

If I can get a clarification, I think you said crossing out markdowns and other issues, you could have seen a 50 to 100 basis point improvement in gross margin.

If I'm listening correctly, would that imply that SG&A was relatively flat for the Target division?

Or clarify SG&A versus gross margin in the period?

Certainly.

I will try to do my best.

For the quarter, GAAP financials actually reported, I think that's important to start there.

Yep.

Gross margin rates declined very slightly at our Target stores division and in addition we had an adverse operating expense trend driven primarily by store-based wages and benefits as a percent of sales.

Apples to apples, second quarter versus the same quarter year ago.

The comment that I made about markdowns was that excluding the now moving away from our GAAP-reported financials, I --

You're talking now real gross margins?

No, no, no.

Okay!

Isolating the single impact of markdowns, markdowns, of course, are real, but isolating the individual impact of markdowns, the adverse impact of markdowns was substantially larger than the net change in gross margin rates.

It's a back doorway of saying excluding the year-over-year impact of markdowns, gross margins would have increased 50 to 100 basis points in the market at Target.

Okay, I think I've got that.

Let me ask a question.

Would you talk more about deflation?

You said at the end of the year, the at the end of '02, you had a 3% impact on comp store sales.

What's going on now?

There's mixed information coming out that deflation is somewhat disappearing for the moment, just your thoughts on it?

My outlook on -- on that issue has not changed in the last three to six months.

And specifically, I said at the beginning of this year, that we expected further deflation during '03 but unlikely at the -- to the same extent as the '02 deflation.

To clarify the '02 deflation as measured at our Target stores division was in excess of 300 basis points, 3 percentage points of deflation.

We only get an accurate read on deflation once a year in depth.

We get an interesting leading indicator throughout the year as we can carefully measure the price per average unit that flows through our point of sale.

That's not a good technical indicator of deflation because there are a lot of mixed factors that affect that statistic that are not inflation or deflation-driven, but isolating that statistic and understanding its inherent flaws that statistic is modestly negative, reflects very modest rates of deflation year to date.

Only once a year do we get the proper mix adjusted answer to the question.

Okay, terrific.

Thank you.

Thank you.

Our next question will come from Shari Eberts from JP Morgan.

Good morning, everybody.

Doug, just a follow-up on a gross margin question, again, is it safe to assume that the 50 to 100 basis points is what you're getting from the sourcing and distribution initiatives?

Certainly a key source of that 50 to 100 basis points is sourcing and distribution initiatives.

But on a quarterly basis, I really want to caution everyone on this call, that is a very volatile equation down at the 10, 20, 30, 40 basis point level.

And therefore, I think it's inappropriate to extrapolate the trends to believe that it's 50 to 100 basis points up as far as the eye can see.

Certainly the mix issue, which is quite stable over rolling 12-month periods of time, Stable in terms of its ability to be predicted, is a much more volatile issue, year in and year out on a quarterly basis.

I have not attempted to tear apart the basis point derived figure to properly mix adjust it and so on.

I think that we should come away from this discussion feeling very good about the gross margin rate trends at Target, we should feel very good about our current sales trends, given that we have turned the corner and have begun cycling against much softer numbers last year and have begun to experience the increase in comps that we predicted.

I think we should feel very good about the second half profitability at our Target stores division, particularly in the fourth quarter.

But I don't want to overplay this gross margin rate issue.

Fair enough.

And having said all that, can you -- can you clarify a little bit more why the operating margin at Target stores would be down in the third quarter?

I realize that fourth quarter is a much easier comparison, but would have expected see perhaps some improvement Q3.

Well...

We enjoyed a 21% increase in operating income in segment profit, rather, in the third quarter of last year.

On a relatively weak 11.8% growth in revenues.

So, I think that our base of performance last year, once again, has as much to do with my forward-looking statements as anything having to do with the quality of our absolute performance.

Quality of our absolute performance is quite high and quite consistent at our Target stores division.

We're cycling a 21% increase in segment profit in the third quarter and only an 8% increase in segment profit in the fourth quarter from last year.

And given the leverage from the fourth quarter to the third, given that this segment, our Target stores segment, enjoys a far bigger fourth quarter lift than say Wal-Mart domestic discount division.

I think the profit dynamics are set for some upside, potentially explosive, but let's just say as minimum some significant upside in the fourth quarter of this year.

Okay, and last question, I know a number of the Lord and Taylor stores are for sale.

Would that be of any interest for the Target stores division?

There are some interest reviews, recycled department stores for Target.

It would be very few if any of those stores.

Thanks very much.

Thank you.

Our next question will come from David Cumberland with Robert Baird.

Good morning.

Two questions in your credit business.

First, what is the remaining opportunity to upgrade guest cardholders to Visa?

And second, for Visa holders that are new to the Corporation, how has your experience compared to the experience on converted guest cardholders?

Currently about 2/3 of the existing Target visas are conversions from the Target guest card.

That, of course, is caused by the high number of initial conversions.

Looking forward, we continue to evaluate the higher performing and credit worthy segments of the guest card portfolio for conversion, but I anticipate that would be a very small percentage of the growth in Target Visa accounts going forward.

The second part relates to the much more active source of growth, which is new accounts in the stores.

And we have gained a lot of experience at issuing those over the last two years and the credit quality of the accounts we wish at Target visas is comparable to those that are conversions from existing red cards at this point.

Thank you.

Thank you.

Our next question will come from Philippe Gassons with Credit Suisse First Boston.

Yes, good morning, gentlemen.

Doug, a couple of housekeeping questions first.

Can you refresh our minds in terms of the -- the Cap Ex number for the full year?

And also whether you're still planning on being cash flow neutral for the year -- after Cap Ex?

Our previous guidance remains our current guidance and we expect to invest between 3.2 and $3.4 billion this year, which is generally unchanged, only slightly higher than the experience of each of the last two years.

All in, all done, all factors considered, I expect that our year-over-year debt net of investments will grow very modestly, so, I do not expect to be literally cash flow neutral with that measure in mind during this year.

At the quarter end that we're talking about today, year-over-year, our debt has grown by $1.8 billion.

So, as we cycle through the third and the fourth quarter, that figure will begin to narrow much more closely to zero, but it's unlikely to reach zero by year-end.

Okay.

And then -- sorry, the two questions I had was for the second quarter, the contribution of the credit card operations to overall operating earnings, increased from the year-ago period.

Last year, I think it was about around 15% of total operating earnings and you had indicated at the analyst meeting last year that it could take a couple of years before hitting 17 and 18%.

Are you still sticking with that outlook, Doug?

Yes, and to clarify, those figures are on an annual basis.

Of course, credit card operations contribute a much higher percentage, Q1, 2, 3 and a lower percentage in Q4 because our credit card operations have very little seasonality relative to the intense seasonality of our merchandising operations.

Those profit figures, of course, are at the segment profit level, which, by definition, is before income taxes and before funding costs.

Okay.

All right.

And the final question was with regard to the comment that was made earlier in the call with regard to moving the distribution of cereal in-house.

Can we anticipate going forward that you will try to move more of the -- the consumables within the OEM in-house distribution network away from super value.

Our overall direction remains with the wholesale channel for perishable food product.

Okay, great, thanks very much.

Thank you.

Our next question will come from Aram Rubinson with Banc of America.

Hey, good morning, thanks, it's Aram Rubinson.

A couple of things.

First, on sales, I'm trying to reconcile a couple of comments you mentioned that you expect sales at the Target division to be much stronger in the back half of the year, yet we're looking at the guidance of 3 to 4, coming off an August where you're looking at 4 to 5.

I'm just kind of curious if -- if those are reconcilable in your mind, I have a follow-up.

Well, the reconciling, of course, is against the backdrop of our year to date actual experience at Target of a positive 1.9.

So, we are suggesting that 4 to 5 in August, 3 to 4 looking longer is meaningfully higher than the 1.9% year to date.

But decelerating from August level wouldn't surprise you?

August is a lot clearer to us right now than the balance of the year.

While we're not ready to -- to increase our outlook for the balance of the year up into the 4 to 5% range or higher, it certainly is a reasonable possibility.

Okay.

Also if you can just update us on in-stock positions, if there's a way to quantify that for us, also on OPP, in terms of opening price points, if there's a subtle shift there as business picked up toward better price points?

Again, as I said in my comments, our in-stock levels, both for our fast-moving items as well as for all items, I would add for add in-stocks, as well, all of these are in the range of the highest measurable levels we've had in the history of the country and -- company and perceive they will continue that way.

In terms of opening price points, there's been no subtle shifts in the business.

This spring has been very focused on fashion newness, new items and -- and items of great value, whether it's opening price point or in the better of the best category.

Just focused on value.

Thanks a lot.

Thank you.

Our next question will come from Robert Ercott from Oppenheimer Capital.

Thank you.

I have two questions.

One with regard to the earnings progression for the rest of the year and one with regard to cash flows.

With regard to the earnings progression for the rest of the year, I think if I heard you right that we shouldn't expect much out of the third quarter and that puts a lot of emphasize on the fourth quarter, actually being a dramatically better quarter in order to make the full year number.

And I'm trying to actually reconcile the components of the increase in the second half of the year.

I think that what I heard was low teen sales and low teens earnings and I thought that that was just from Target.

But then what would have to happen in credit card operations and in Mervyn's and Marshall Field's in order for the earnings to go 18% in the second half?

For the total company.

I will try to reconcile that to my earlier comments.

Okay.

I will start with our Target -- let me start with the credit card operations.

Our credit card operations remain the easiest thing to predict in this Corporation.

I expect continued net portfolio yield in the 10 to 11% range.

I expect sequentially, very little growth in accounts receivable balances, Q3 versus Q2.

That's consistent with our recent trends.

And I expect to see a national seasonal build in Q4 in sequence that would preserve modest year-over-year growth by the end of the year, but much lower than the billion dollar current year-over-year growth that the second quarter end reflects.

So, steady as she goes from a receivables profitability standpoint.

In the Target stores division, from merchandising, excluding credit cards, as Gregg mentioned, we expect modest compression in operating margins in Q3 and expansion in Q4.

How much will ultimately be a function of how significant the sales increase might be, we're suggesting today 3 to 4%.

It's certainly plausible it could be stronger than that, or weaker, as well.

At Mervyn's and Field's, what I said in my remarks is that I expected one more quarter in the aggregate of pressure on segment profit this year versus last year.

And I expect that the fourth quarter will be our first opportunity in -- in four quarters running, to experience upside at the bottom line.

I expect an increase in the segment profit at Mervyn's and Field's in the fourth quarter, compared to last year's relatively depressed base.

That is the more detailed view that leads to modest EPS growth in the third quarter and the potential for a sharp increase in EPS growth in the fourth quarter.

Thank you, Doug.

Other question that I had with regard to the cash flows, can you talk a little bit about the working -- your working capital needs?

And specifically when I look at the cash flows from year to date, there's one of the biggest increases in working capital needs is this other current assets that used $418 million.

I'm just not sure what -- what that is?

For anyone who'd like a detailed breakdown of what's going on there, please follow-up with Susan Con or myself.

But I can tell you that net-net, by the time we get to the end of the year, I expect that you will see relatively low increase in year-over-year debt and I expect moving forward that that equation will become much more neutral to favorable.

There are a lot of components and certainly on interim periods, a lot of -- of volatility in the individual quarterly element.

Okay.

Thank you.

Thank you.

Our next question will come from Debra Weinswig with Smith Barney.

Doug, you talked about the confidence that you had in the Mervyn's and Marshall Field's business, basically turning a quarter in the fourth quarter.

Is any of that either related to new initiatives in private brand or new product from vendors or working with profit logic?

Or what would be the basis of that?

Really, just much easier year-over-year comparisons?

Far more the latter than any specific element you mentioned.

Last year, through three quarters, Mervyn's was on track for record modern year second profit and had a very, very poor fourth quarter sales performance that led directly to a very, very, very poor fourth quarter profit performance.

We were positioned for sales much stronger than the sharp negative trends that we experienced and incurred some mark downs to boot as a result of.

That we do not expect to repeat that performance this year.

We expect to do much better.

At Marshall Field's, year-over-year through three quarters, we weren't having a modern year record high, but the business was on track for a much better year through three quarters than we turned in because some of the same elements I just described for Mervyn's occurred at Marshall Field's in the fourth quarter last year, sharply lower sales, which given the nature of the business, led to sharper higher than expected markdowns and created a challenge from a P&L standpoint.

This corporation missed its December sales plan last year by about $300 million.

And that is not a set of facts that I would expect to repeat itself this year.

And a quick question for Gerry, you mentioned you're focusing on RIFD.

Can you tell us where Target is and where you expect to see it in the next few years?

We are as leading edge in this as anyone is.

I believe this is a very important development over the 5 to 10 year time horizon and it will be as revolutionary as introduction of bar code scanning was.

In the next several years, I believe it's an experiment technology to have little immediate effect on the business.

You know, in certain applications, you know, large scale distribution applications for entire trailers or trucks or ships, it will come into play earlier, but for the -- for the mass scale rollout on an individual item basis, through out system it will come later.

Great, thanks so much.

Thank you.

Our next question will come from Dan Jenkins with state of Wisconsin investments.

Good morning.

I have a couple of questions.

First, kind of -- I wondered if you could give us color on if you're seeing different sales trends or -- or growth geographically in a particular with the Mervyn's, I'm wondering, you know, the margins dropped quite a bit at Mervyn's and I wondered if some of that could be perhaps the impact of Kohl's entry into the L.A. area?

And secondarily, I wondered just as far as your Cap Ex and -- and the second half of the year and I notice your cash is down quite a bit from where it was a year ago and if you're going to need financing for that and -- and if so, how you would do that?

First of all, geographically, sales are pretty much even across most of the country with the exception that Target has relatively immature store base on the east coast, in the mid Atlantic and in the northeast.

So, mature store sales are stronger there.

Diane, you can comment quickly on Kohl's L.A. entry.

It is the way we forecast it.

Affecting us anywhere between and 10% down in the stores adjacent to the Kohl's stores.

And with respect to your cash flow question.

For the balance of the year, our cash flow from operations is likely to more than fully fund our capital expenditure needs.

So, our year-end debt in an absolute sense is unlikely to exceed our current debt net of invested capital position.

Separately, you remarked about the change in cashier over year -- cash year-over-year, we rarely, in our history, ended quarters with invested securities overnight.

More recently, that's happened several times as we've borrowed in advance of our cash needs.

We're cycling one of the times right now,last year's cash position, reflected an acceleration of our term debt borrowing that caused us to have well over a billion dollars of short-term investments crossing second quarter end and that did not repeat itself this year.

Okay.

Thank you.

Thank you.

Our next question will come from Daniel Binder with Buckingham Research.

Thank you.

A couple of questions.

As you moved to EDLP at the super Targets, have your food margins improved?

And my second question relates to your earlier comments about the penetration of, I guess consumables/commodity products at about 1% per year.

And my question there is that given the -- what is seemingly stronger consumable sales in your recent quarter, based on your sales updates, and your expectation to expand pantry and new and remodeled stores going forward it would seem that that rate of penetration would improve.

I'm trying to figure out why that would not be the case.

First of all, the EDLP.

We have always been basically EDLP in our food business, but we did occasionally run supplemental ads, so, we've removed that.

But we never really had a high/low strategy in food.

And with the margins in the business, Gregg?

Yes, the margins are stronger this year than last year and I wouldn't say it's due to due to EDLP.

Our margins are better because we have greater scale, greater negotiating power.

Also, our increase in private brands penetration helps reduce the margin pressure that we're under from some of the national brands.

So, it's not just about EDLP, although that might have some -- something to do with the margin.

I think it's the other factors that have a bigger impact.

As it relates to the penetration, we've taken all of that into account and we're very, you know, comfortable that 1% is about the right number and it could be a little higher, could be a little lower.

We've calculated the impact of remodels into the equation as well as our new store growth.

So, we're really comfortable with that and we're very committed to being able to manage and grow profitably whether it's in consumables or through our differentiated strategy.

Again, we're very, very pleased with the frequency of guest visits.

I mean we're getting the guests to visit our stores much more frequently than we have in the past.

So, that's a very, very positive sign for us and -- and as we've demonstrated in the past we'll be able to do in the future, we will manage the margin appropriately to offset the negative consequences of that growth in consumables.

Just a follow-on, if I could, you know, given your -- your comments last quarter that expand the consumables in new and remodeled stores and the strong performance this quarter in that category, I guess is there any reason why say next year or the year after it would make sense to accelerate the expansion of Super Target?

If -- basically we're -- we're looking at all locations, we know where Super Target performs well and at this point in time, it performs well where we have adequate qualities of people with good income demographics and in some cases, we don't find the locations or in some cases we can't find the 16 to 18 to 20 acres of real estate.

We are very comfortable with growing our square footage of Super Target at approximately 30, 30 some percent relative to the total chain, means about 20, 25% of the units.

But certainly, you could have a blip upward, find more locations, get better real estate opportunities and as the penetration in the business grows it could accelerate.

But that's a reasonable, overall ballpark estimate.

And lastly, as it relates to your earlier comments of seeing modest deflation year to date, how much of that is self-inflicted?

That's a figure that is impossible to derive on a year to date basis.

Certainly we continue to enjoy some benefits in cost of sales from our global sourcing efforts and we have continued year to date to choose to funnel a substantial portion of those benefits to our guests in the form of lower pricing, higher quality and so on.

And a portion of that benefit is responsible for the gross margin rate dynamics that I described earlier.

Thank you.

Thank you.

Our next question will come from Christine Augustine with Bear Stearns.

Thank you.

My question is regarding your promotional strategy and if you are making any changes and shifting more into the fourth quarter?

I'm trying to figure out if there's something else going on just besides the fact that the comparisons are so much easier in the fourth quarter?

And I guess related to that, does this latest import warehouse, does that have more of a benefit to you in the fourth quarter?

Just because you're more seasonally dependent on the quarter?

There are no major promotional shifts relative to last year at our base Target, which is biggest.

We're doing special things at Mervyn's and Marshall Field's, but it's really more the soft comparisons last year and a strengthening trend in sales that we're already starting to see.

Last year's fourth quarter was the only quarter in the chain's history, in Target's history that we incurred a negative same store sales comparison to the prior year.

As far as import warehouses -- Naturally they're more highly utilized in the peak season of the year, but there is no special benefit from the -- from the last one compared to the others.

Okay.

Thank you.

Thank you.

Our next question will come from David Campbell with Davenport.

Good morning.

You had previously suggested that your annualized charge-off rate might decline beginning in this quarter.

From where it was in the first quarter.

And I was wondering if you might address that because the charge-off rate actually increased this quarter.

No, I think there's -- a misperception of what we intended to say when we said it before.

What I believe we said 90 days ago is that we expected our net charge-off rate reported quarterly and calculated on an annualized basis would likely stabilize for each quarter and for the full year in the range of 8.5 to 9%.

The first quarter, of course, was lower than this quarter, first quarter was 10 basis points lower than the bottom end of that range, I believe, this quarter, 10 basis points lower than the top end of that range.

We expect general stability from this point forward.

If we get into the 10, 20 basis point kind of discussion, by the way, I think this is a forward-looking statement I'm about to make, is more prone to being wrong after the fact because of the nature of its precision, I think the third quarter will likely look a lot like the second quarter, plus or minus 10, 20, 30 basis points and we may see a seasonally driven in the fourth quarter,.

Not something I'd count on to the last 10 or 20 basis points.

And looking out into next year, where would you anticipate that charge-off rate to -- to go directionally?

Well, obviously we're less clear looking out that far, but I don't see any signs in the economy or in the development of our portfolio that would lead one to believe that any meaningful change up or down is in the cards.

I expect to continue to enjoy a 10 to 11% overall net portfolio yield before funding costs and income taxes for the balance of this year and throughout 2004, as well.

Thank you.

Thank you.

Our next question will come from Karen Young with All State.

Thank you.

Next is trees was Donahue.

Nothing, now, thanks.

And our next question will come from Patrick McKeever with SunTrust Robinson Humphrey Capital Markets.

Bob, I mentioned in conjunction with the talk about perhaps the question about accelerating growth at super Target, that occasionally you're having trouble finding real estate locations.

Has anything changed on that front for super Target?

Are you running into, zillion, maybe Wal-Mart more so these days as Wal-Mart pushes into more suburban and semi urban markets with the super center.

Is that something to think about?

It's not really an issue with Wal-Mart because our assumption is that Wal-Mart will be everywhere eventually, you know, so, we know that wherever it is, we will have to compete with them.

But we are still trying to expand geographically in -- in areas where it makes sense, we want a reasonable concentration of super Targets in a given market so we're not scattering them all over the country yet.

We're in the midwest, going into the south, into the southeast and gradually expanding that geography.

What I'm seeing is right now sometimes not all the sites available of 17, 18, 19 acres in the kind of upscale high numbers of people that -- that will support a super Target.

But there's really nothing unusual out there in terms of competitive dynamics or in terms of the real estate market that has changed.

Okay.

And then just a quick one for Doug.

Doug, the, the Target Visa -- I don't know if you want to call them promotions or not, but I think the Visa cardholders, Target Visa cardholders, are getting a 10% off entire purchase kind of promo these days.

And I think that when you sign up a new Visa cardmember at the store level, you also give them that 10% off.

Does it play at all into gross margins for the Target division?

Or did it during the second quarter?

Or is that just not material?

It is reflected as an adverse item in gross margins at our Target stores division and you're correct in assuming it's not material.

Okay.

10% off on only the initial purchase in signing up -- or in one purchase a month after they accumulate a lot of charges on the account.

So, it's not a high frequency thing.

By the way, the way that a guest gets to one purchase a month is to spend more than $1,000 a month in our store or more than $2,000 a month outside of our stores on the card.

So, we like those guests and are delighted to provide them with a 10% opportunity to spend more in our stores.

Of course, for many, many years, we've been giving 10% off for the initial on the propriety card, as well.

Haven't gotten there yet, but the $1,000 a month, anyway, but I'm working on it.

Good, we appreciate that! [ Laughter ]

Thanks.

Thank you.

Our next question will come from Richard Larson with Lord Abbott.

Good morning.

Given the really difficult economic conditions we've had over the last three or four years with deflation, 9/11, the Gulf War, Target, in particular, Target, the Target operations have outperformed virtually all of its competition.

Can you give me be idea of what -- what three things would differentiate you and allow you to continue to do that?

Can you talk to that?

What makes Target different?

Basically it's a continuation of our strategy, Expect More, Pay Less.

And we -- we continue to provide, as Gregg said, the key differentiated style merchandise at absolutely phenomenal prices.

At the same time, we work very hard to be very competitive in pricing with Wal-Mart.

We work hard to be sure we're opening price points and obviously the continuing shift in the consumer towards strong value, whether it be at opening price points, middle or upper price points and we continue to execute our strategy and we think it's going to continue to be very successful.

Thank you.

Thank you.

At this time, I show no further questions.

All right.

Well, thank you very much for your participation.

That concludes Target Corporation's second quarter earnings conference call.

This concludes today's presentation.

Thank you for participating and enjoy the rest of your day.