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Target Retail Segment sales grow in Q2
Aug '08
Target Corporation reported net earnings of $634 million for the second quarter ended August 2, 2008, compared with $686 million in the second quarter ended August 4, 2007. Earnings per share in the second quarter increased 2.4 percent to $0.82 from $0.80 in the same period a year ago. All earnings per share figures refer to diluted earnings per share.

"Our second quarter earnings per share modestly exceeded our expectations despite continued soft sales trends," said Gregg Steinhafel, president and chief executive officer. "We continue to focus on driving our financial results through superior execution and discipline and by continuing to delight our guests with differentiated merchandise at a compelling value."

Retail Segment Results:
Sales grew 5.7 percent in the second quarter to $15.0 billion in 2008 from $14.2 billion in 2007, due to the contribution from new store expansion slightly offset by a 0.4 percent decline in comparable store sales. Retail segment earnings before interest expense and income taxes (EBIT) were $1.1 billion in the second quarter of 2008, up 7.2 percent from $1.0 billion in 2007.

Second quarter gross margin rate declined moderately from last year, driven by faster sales growth in lower margin rate categories, partially offset by increased margin rates within categories. Second quarter selling, general and administrative (SG&A) expense rate improved meaningfully from 2007, benefiting from continued productivity gains in stores, and disciplined control of expenses across the company.

Credit Card Segment Results:
The average receivables directly funded by Target in the second quarter declined 19.8 percent to $3.6 billion from $4.5 billion a year ago, reflecting the impact of JPMorgan Chase's investment in the receivables portfolio, partially offset by a $1.8 billion increase in average receivables.

Segment profitability in the quarter declined 65 percent to $74 million from $213 million in the same period a year ago, as a result of a decline in overall portfolio yield, combined with Target's reduced investment in the portfolio. This yield decline is attributable to higher bad debt expense resulting from an increase in current period write-offs combined with additions to the reserve for future periods, as well as the impact on portfolio yields of lower interest rates.

Second quarter segment pre-tax return on invested capital declined to 8.2 percent in 2008 from a quarterly record 18.8 percent in 2007.

Interest Expense and Taxes:
Net interest expense for the quarter increased $63 million from second quarter 2007, due to higher average debt balances supporting capital investment, share repurchase and the receivables portfolio, slightly offset by lower average debt portfolio interest rates. Over the past four quarters, the company has invested $4.0 billion in capital expenditures, $4.9 billion in share repurchase and grown its investment in accounts receivable by $1.7 billion.

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