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Target Corporation Second Quarter Earnings Per Share $1.54

From: ASAP


Target Corporation today reported net income of $1.416 billion, or $1.54 per share, for the second quarter ended July 31, 2004, compared with $358 million, or $0.39 per share, in the second quarter ended August 2, 2003. Current year results include earnings from continuing operations of $366 million or $0.40 per share, earnings from discontinued operations of $31 million or $0.03 per share and a gain of $1.019 billion or $1.11 per share related to the sale of Marshall Field's to The May Department Store Company. Earnings from continuing operations in the current year include a pre-tax loss of $74 million, or $0.05 per share, related to the repurchase of $455 million of debt at a premium, primarily associated with application of a portion of the proceeds from the sale of Marshall Field's. Discontinued operations include the results of both Mervyn's and Marshall Field's for the entire quarter. All earnings per share figures refer to diluted earnings per share.

"We are pleased with our strong second quarter results at Target Stores, and confident that we will continue to enjoy profitable market share growth throughout the remainder of 2004 and well into the future," said Bob Ulrich, chairman and chief executive officer of Target Corporation. "We are also pleased with the significant progress we made during the quarter in completing the sale of Marshall Field's and announcing the pending sale of Mervyn's. We believe these actions reinforce our long-term commitment to create substantial value for our shareholders and enhance the opportunity for all of our stakeholders to achieve continued success."

Analysis of Continuing Operations

Total revenues in the second quarter increased 10.0 percent to $10.556 billion from $9.594 billion in 2003, driven by a 3.9 percent increase in comparable store sales combined with the contribution from new store expansion. (Total revenues include retail sales and net credit revenues. Comparable-store sales are sales from stores open longer than one year.)

For the quarter, earnings before interest and income taxes increased 16.4 percent to $795 million, compared with $685 million in the second quarter 2003. The contribution from the company's credit card operations to pre-tax earnings in the quarter was $120 million, an increase of $13 million, or 12.9 percent.

In the second quarter, the company's gross margin rate improved from the prior year, reflecting improvements in both markup and markdown rates, while the company's expense rate was unfavorable to prior year. (Gross margin rate represents sales less cost of sales expressed as a percentage of sales. Expense rate represents selling, general and administrative expenses expressed as a percentage of sales.)

Other Factors

Net interest expense for the quarter increased $53 million compared with second quarter 2003 reflecting a substantially higher loss on debt repurchase partially offset by the benefit of lower average funded balances.

The company's effective income tax rate was 37.8 percent, compared with 38.0 percent in the second quarter last year.

In June 2004, the company announced a $3 billion share repurchase program that is expected to be completed within two to three years. Under this program, the company repurchased $472 million of its common stock during the second quarter, acquiring 11.0 million shares at an average price of $42.79 per share.

Status of Mervyn's Transactions

On July 29, 2004, Target Corporation announced it had reached a definitive agreement to sell its Mervyn's retail subsidiary, including 257 stores and four distribution centers, to an investment group comprised of Sun Capital Inc., Cerberus Capital Management, and Lubert-Adler/Klaff and Partners, and all of Mervyn's credit card receivables to GE Consumer Finance, a unit of GE Capital, for an aggregate price of approximately $1.65 billion. The transaction is subject to regulatory approval and is expected to close in the third quarter of 2004. Target Corporation expects this transaction to result in a pre-tax gain of approximately $270 million, or about $0.18 per share.

Separately, while the transaction related to the sale of Marshall Field's to The May Department Store Company was completed in the second quarter ended July 31, 2004, the transaction to sell 9 Minnesota Mervyn's stores to The May Department Store Company is expected to close in the third quarter and is not expected to result in a gain or a loss at that time.


Target Corporation will webcast its second quarter earnings conference call at 9:30am CDT today. Investors and the media are invited to listen to the call through the company's website at http://www.target.com/ (click on "company/Target Corporation/investor information/webcasts"). A telephone replay of the call will be available beginning at approximately 11:30am CDT today through the end of business on August 13, 2004. The replay number is (402) 220-3560.

Forward-looking statements in this release should be read in conjunction with the cautionary statements in Exhibit (99)C to the company's 2003 Form 10-K.

Target Corporation's continuing operations include large, general merchandise discount stores, as well as an on-line business called Target.com. The company currently operates 1,272 Target stores in 47 states.

August 2004

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