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Target Corp. Fourth Qtr. Ended Feb. 03

From: ASAP


Target Corporation (NYSE: TGT) reported earnings per share for the fourth quarter ended February 1, 2003 of 75 cents, compared with 72 cents in the fourth quarter ended February 2, 2002. Fourth quarter net earnings increased 4.4 percent to $688 million, compared with $658 million in 2001. All earnings per share figures refer to diluted earnings per share.

For the full year, diluted earnings per share were $1.81, an increase of 16.7 percent compared with $1.55 before a 5-cent reduction related to the impact of restoring our securitized accounts receivable to our financial statements in 2001. On the same basis, net earnings were $1.654 billion, up 17.3 percent compared with $1.410 billion in the prior year. On a GAAP basis, 2002 net earnings grew 20.9 percent.

"We are pleased with our overall financial results for fiscal 2002, especially in light of our relatively soft sales performance," said Bob Ulrich, chairman and chief executive officer of Target Corporation. "In 2003, we will continue to focus on delivering even greater value to our guests and achieving profitable market share growth. We remain confident that we will continue to generate average annual earnings per share growth of 15 percent or more over time."

Full Year Results

Total revenues in 2002 increased 10.3 percent to $43.917 billion from $39.826 billion in 2001, driven by an increase in consolidated comparable-store sales of 1.1 percent as well as contribution from Target's new store expansion and from credit card operations. (Total revenues include retail sales and net credit revenues. Comparable-store sales are sales from stores open longer than one year.)

For the year, pre-tax segment profit increased 16.7 percent to $3.461 million, compared with $2.965 million in 2001. Pre-tax profit at Target Stores increased $542 million, or 21.3 percent. Pre-tax profit at Marshall Field's rose by $2 million and pre-tax profit at Mervyn's declined $48 million. (Pre-tax segment profit is earnings before LIFO, securitization effects, interest, other expense and unusual items.)

The company's full year gross margin rate increased from the prior year, due to improvement at both Target and Mervyn's, partially offset by the mix impact of growth at Target, our lowest gross margin rate division. (Gross margin rate represents gross margin as a percentage of sales.)

The full year expense rate, excluding credit card operations, was unfavorable to prior year, principally due to slower-than-expected same store sales growth. This effect was only partially offset by the benefit of overall growth at Target, our lowest expense rate division. (Expense rate represents selling, general and administrative expenses as a percentage of sales. It includes buying and occupancy, advertising, start-up and other expense, and excludes depreciation and expenses associated with credit card operations.)

The full year contribution from the company's credit card operations increased 19.6 percent to $532 million from $445 million last year. At year-end, gross receivables were $5.964 billion, compared with $4.092 billion at the end of 2001, due to the continued growth in issuance and usage of the Target Visa card. The provision for bad debt expense exceeded net write-offs by $138 million for the year, as a result of the company's consistent practice of providing for projected future write-offs as receivables are created. Results of credit card operations are reflected in the pre-tax segment profit of each of our three business segments.

Fourth Quarter Results

Fourth quarter revenues increased 6.4 percent to $14.061 billion from $13.220 billion in the same period a year ago. Comparable store sales for the quarter decreased 2.2 percent.

Fourth quarter 2002 pre-tax segment profit increased 1.4 percent to $1.291 billion, compared with $1.272 billion in the fourth quarter of 2001, due to continued growth at Target Stores, partially offset by the declines at Mervyn's and Marshall Field's.

The company's fourth quarter gross margin rate was favorable to the prior year, while the expense rate in the quarter was unfavorable. Contribution from the corporation's credit card operations to pre-tax segment profit rose 41.5 percent, or $44 million, to $150 million.

Other Factors

Fourth quarter and full year gross margin results include a pretax LIFO credit of $12 million, or $0.01 per share, in 2002, compared with an $8 million charge in 2001.

Net interest expense for the quarter increased $19 million, due to higher average funded balances, partially offset by the benefit of a lower average portfolio interest rate. For the full year, net interest expense rose $88 million compared with net interest expense and interest equivalent in 2001. This increase is due to higher average funded balances and the repurchase of high interest rate debt at a premium, partially offset by a lower portfolio interest rate.

The company's annual effective income tax rate was 38.2 percent, compared with 38.0 percent last year.

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