Executive Summary

Consolidated revenues were $16,867 million for the three months ended April 28, 2012, an increase of $932 million or 5.9 percent from the same period in the prior year. Consolidated earnings before interest expense and income taxes for first quarter 2012 increased by $21 million or 1.6 percent over first quarter 2011 to $1,285 million. Cash flow provided by operations was $1,307 million and $1,052 million for the three months ended April 28, 2012 and April 30, 2011, respectively. Diluted earnings per share in the first quarter increased 5.0 percent to $1.04 from $0.99 in the same period a year ago. Adjusted diluted earnings per share, which we believe is useful in providing period-to-period comparisons of the results of our U.S. operations, increased 11.5 percent to $1.11 in first quarter 2012 from $0.99 in the same period a year ago.

Earnings Per Share                       Three Months Ended
                                        April 28 ,    April 30 ,
                                            2012          2011   Change
GAAP diluted earnings per share       $     1.04    $     0.99      5.0 %
Adjustments(a)                              0.07             -
Adjusted diluted earnings per share   $     1.11    $     0.99     11.5 %

Note: A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 20.

(a) Adjustments represent the diluted EPS impact of our planned 2013 Canadian market entry and the favorable resolution of various income tax matters.

Our financial results for the first quarter of 2012 in our U.S. Retail Segment reflect increased sales of 6.1 percent over the same period last year due to a 5.3 percent comparable-store increase combined with the contribution from new stores. In first quarter 2012 we experienced U.S. Retail Segment EBITDA and EBIT margin rate improvements compared to first quarter 2011, driven by strong year-over-year sales growth resulting in leverage on selling, general and administrative (SG&A) expenses.

In the U.S. Credit Card Segment, we experienced a decrease in segment profit due to annualizing over a significant reserve reduction in the prior year and a smaller portfolio resulting in lower finance charge revenue, partially offset by lower interest expense.

During the three months ended April 28, 2012, loss before interest expense and income taxes in our Canadian Segment totaled $55 million, comprised of start-up costs and depreciation, compared to $11 million during the three months ended April 30, 2011.

Analysis of Results of Operations



U.S. Retail Segment



U.S. Retail Segment Results                           Three Months Ended
                                               April 28 ,  April 30 , Percent
(millions)                                         2012        2011    Change
Sales                                         $  16,537   $  15,580       6.1  %
Cost of sales                                    11,541      10,838       6.5
Gross margin                                      4,996       4,742       5.4
SG&A expenses(a)                                  3,293       3,173       3.8
EBITDA                                            1,703       1,569       8.5
Depreciation and amortization                       504         507      (0.7 )
EBIT                                          $   1,199   $   1,062      12.9  %

EBITDA is earnings before interest expense, income taxes, depreciation and amortization.

EBIT is earnings before interest expense and income taxes.

Note: See Note 11 to our consolidated financial statements for a reconciliation of our segment results to earnings before income taxes.

(a) Loyalty program charges were $65 million and $49 million for the three months ended April 28, 2012 and April 30, 2011, respectively. In all periods, these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment.

U.S. Retail Segment Rate Analysis                             Three Months Ended
                                                           April 28,    April 30,
                                                                2012         2011
Gross margin rate                                               30.2  %      30.4  %
SG&A expense rate                                               19.9         20.4
EBITDA margin rate                                              10.3         10.1
Depreciation and amortization expense rate                       3.0          3.3
EBIT margin rate                                                 7.3          6.8

Rate analysis metrics are computed by dividing the applicable amount by sales.

Sales

Sales include merchandise sales, net of expected returns, from our stores and our online business, as well as gift card breakage. See Item 1 in our Form 10-K for the fiscal year ended January 28, 2012 for a description of our product categories.

Sales by Product Category                         Three Months Ended
                                               April 28,    April 30,
                                                    2012         2011
Household essentials                                  26  %        26  %
Hardlines                                             16           17
Apparel and accessories                               20           20
Food and pet supplies                                 21           20
Home furnishings and décor                            17           17
Total                                                100  %       100  %

Comparable-store sales is a measure that highlights the performance of our existing stores by measuring the change in sales for such stores for a period over the comparable, prior-year period of equivalent length. The method of calculating comparable-store sales varies across the retail industry. As a result, our comparable-store sales calculation is not necessarily comparable to similarly titled measures reported by other companies.

Comparable-store sales are sales from our online business and stores open longer than one year, including:

† sales from stores that have been remodeled or expanded while remaining open (including our current store remodel program)

† sales from stores that have been relocated to new buildings of the same format within the same trade area, in which the new store opens at about the same time as the old store closes

Comparable-store sales do not include:

† sales from general merchandise stores that have been converted, or relocated within the same trade area, to a SuperTarget store format

† sales from stores that were intentionally closed to be remodeled, expanded or reconstructed

Comparable-Store Sales                                          Three Months Ended
                                                             April 28,    April 30,
                                                                  2012         2011
Comparable-store sales change                                      5.3  %       2.0  %
Drivers of change in comparable-store sales:
   Number of transactions                                          2.0          0.4
   Average transaction amount                                      3.2          1.6
      Units per transaction                                        0.6          4.4
      Selling price per unit                                       2.6         (2.6 )

The collective interaction of a broad array of macroeconomic, competitive and consumer behavioral factors, as well as sales mix, and transfer of sales to new stores makes further analysis of sales metrics infeasible.

Our U.S. Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards: the Target Visa Credit Card and the Target Credit Card (Target Credit Cards). Additionally, we offer a branded proprietary Target Debit Card. Collectively, we refer to these products as REDcards®. Guests receive a 5 percent discount on virtually all purchases at checkout every day when they use a REDcard at any Target store or on Target.com.

We monitor the percentage of store sales that are paid for using REDcards (REDcard Penetration), because our internal analysis has indicated that a meaningful portion of the incremental purchases on our REDcards are also incremental sales for Target, with the remainder representing a shift in tender type.

REDcard Penetration                                  Three Months Ended
                                                  April 28,    April 30,
                                                       2012         2011
Target Credit Cards                                     7.1  %       5.9  %
Target Debit Card                                       4.5          1.7
Total Store REDcard Penetration                        11.6  %       7.6  %

Gross Margin Rate

For the three months ended April 28, 2012, our gross margin rate was 30.2 percent, decreasing from 30.4 percent in the comparable period last year, reflecting downward pressure from our integrated growth strategies of 5% REDcard Rewards and remodel program, partially offset by a beneficial mix of higher-margin sales and underlying rate improvements within categories.

Selling, General and Administrative Expense Rate

For the three months ended April 28, 2012, the SG&A expense rate was 19.9 percent, a decrease from 20.4 percent in the same period last year. Approximately half of this improvement is due to store hourly payroll expense improvements, and the remainder was spread across several other areas.

SG&A expenses exclude depreciation and amortization, as well as expenses associated with our credit card operations, which are reflected separately in our Consolidated Statements of Operations.

Depreciation and Amortization Expense Rate

For the three months ended April 28, 2012, our depreciation and amortization expense rate was 3.0 percent, compared with 3.3 percent last year. This decrease is due to strong year-over-year sales growth creating leverage on stable depreciation and amortization expenses.

Store Data

During the three months ended April 28, 2012, we opened 3 new stores (one net of one relocation and one closure). During the three months ended April 30, 2011, we opened 6 new stores (5 net of one relocation). During the first quarter of 2012, we remodeled 114 stores under our current store remodel program, compared with 83 in the comparable prior year period.

Number of Stores and Retail
Square Feet                             Number of Stores                  Retail Square Feet(a)
                                April 28 , January 28 , April 30 ,   April 28 , January 28 , April 30 ,
                                    2012         2012       2011         2012         2012       2011
Target general merchandise
stores                               521          637        953       62,464       76,999    116,462
Expanded food assortment
stores                               992          875        550      128,885      114,219     73,253
SuperTarget stores                   251          251        252       44,503       44,503     44,681
Total                              1,764        1,763      1,755      235,852      235,721    234,396

(a) In thousands; reflects total square feet, less office, distribution center and vacant space.

U.S. Credit Card Segment

We offer credit to qualified guests through the Target Credit Cards. Our credit card program supports our core retail operations and remains an important contributor to our overall profitability and engagement with our guests.

Credit card revenues are comprised of finance charges, late fees and other revenue, and third party merchant fees, which are amounts received from merchants who accept the Target Visa Credit Card.

U.S Credit Card Segment
Results                           Three Months Ended           Three Months Ended
                                    April 28, 2012               April 30, 2011
                                             Annualized                    Annualized
(millions)                        Amount        Rate(d)         Amount        Rate(d)
Finance charge revenue         $     271           17.8 %    $     292           18.1 %
Late fees and other
revenue                               40            2.6             42            2.6
Third party-merchant fees             19            1.3             21            1.3
Total revenue                        330           21.7            355           22.0
Bad debt expense                      52            3.4             12            0.8
Operations and marketing
expenses(a)                          133            8.8            125            7.8
Depreciation and
amortization                           4            0.2              5            0.3
Total expenses                       189           12.4            142            8.8
EBIT                                 141            9.3            213           13.2
Interest expense on
nonrecourse debt
collateralized by credit
card receivables                       2                            19
Segment profit                 $     139                     $     194
Average receivables funded
by Target(b)                   $   4,886                    $    2,504
Segment pretax ROIC(c)              11.4 %                        30.9 %

Note: See Note 11 to our Consolidated Financial Statements for a reconciliation of our segment results to earnings before income taxes.

(a) See footnote (a) to our U.S. Retail Segment Results table on page 14 for an explanation of our loyalty program charges.

(b) Amounts represent the portion of average gross credit card receivables funded by Target. These amounts exclude $1,187 million for the three months ended April 28, 2012, and $3,959 million for the three months ended April 30, 2011, of average receivables funded by nonrecourse debt collateralized by credit card receivables.

(c) ROIC is return on invested capital, and this rate equals our segment profit divided by average gross credit card receivables funded by Target, expressed as an annualized rate. This measure has decreased significantly, primarily due to our voluntary retirement of our 2008 series securitization in January 2012, increasing the average receivables funded by Target.

(d) As an annualized percentage of average gross credit card receivables.

Spread Analysis - Total Portfolio        Three Months Ended              Three Months Ended
                                           April 28, 2012                  April 30, 2011
(millions)                                          Annualized                        Annualized
                                          Amount          Rate              Amount          Rate
EBIT                                  $      141          9.3% (c)    $       213          13.2% (c)
LIBOR(a)                                                  0.2%                              0.2%
Spread to LIBOR(b)                    $      137          9.1% (c)    $       209          13.0% (c)

(a) Balance-weighted one-month LIBOR.

(b) Spread to LIBOR is a metric used to analyze the performance of our total credit card portfolio because the majority of our portfolio earns finance charge revenue at rates tied to the Prime Rate, and the interest rate on all nonrecourse debt collateralized by credit card receivables is tied to LIBOR.

(c) As an annualized percentage of average gross credit card receivables.

Our primary measure of segment profit is the EBIT generated by our total credit card receivables portfolio less the interest expense on nonrecourse debt collateralized by credit card receivables. We analyze this measure of profit in light of the amount of capital we have invested in our credit card receivables. In addition, we measure the performance of our overall credit card receivables portfolio by calculating the dollar Spread to LIBOR at the portfolio level. This metric approximates overall financial performance of the entire credit card portfolio we manage by measuring the difference

between EBIT earned on the portfolio and a hypothetical benchmark rate financing cost applied to the entire portfolio. The interest rate on all nonrecourse debt collateralized by credit card receivables is tied to LIBOR.

Segment profit for the three months ended April 28, 2012 decreased to $139 million from $194 million for the three months ended April 30, 2011. Spread to LIBOR for the quarter was 9.1 percent or $137 million, down from 13.0 percent or $209 million a year ago. Segment revenues for the three months ended April 28, 2012 were $330 million, a decrease of $25 million, or 7.1 percent, from the same period in the prior year. The decrease was primarily driven by lower average receivables resulting in reduced finance charge revenue. Segment expenses were $189 million for the three months ended April 28, 2012, an increase of $47 million, or 32.6 percent, from the comparable prior year period driven by higher bad debt expense primarily attributable to annualizing over a significant reduction in the reserve in the prior year. Segment interest expense on nonrecourse debt for the three months ended April 28, 2012 declined by $17 million from last year, due to a decrease in nonrecourse debt collateralized by credit card receivables.

Receivables Rollforward Analysis                              Three Months Ended
                                                           April 28,        April 30,
(millions)                                                      2012             2011
Beginning gross credit card receivables                  $     6,357     $      6,843
Charges at Target                                              1,288            1,002
Charges at third parties                                       1,139            1,251
Payments                                                     (3,060)          (3,001)
Other                                                            219              191
Period-end gross credit card receivables                 $     5,943     $      6,286
Average gross credit card receivables                    $     6,073     $      6,463
Accounts with three or more payments (60+ days) past
due as a percentage of period-end gross credit card
receivables                                                     2.7%             3.3%
Accounts with four or more payments (90+ days) past
due as a percentage of period-end gross credit card
receivables                                                     1.9%             2.4%




Allowance for Doubtful Accounts                              Three Months Ended
                                                          April 28,       April 30,
(millions)                                                     2012            2011
Allowance at beginning of period                         $      430     $       690
Bad debt expense                                                 52              12
Write-offs(a)                                                 (127)           (184)
Recoveries(a)                                                    40              47
Allowance at end of period                               $      395     $       565
As a percentage of period-end gross credit card
receivables                                                    6.6%            9.0%
Net write-offs as an annualized percentage of
average gross credit card receivables                          5.7%            8.5%

(a) Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period collections on previously written-off balances. These amounts combined represent net write-offs.

Period-end and average gross credit card receivables have declined because of an increase in payment rates and a decrease in Target Visa Credit Card charges at third parties, partially offset by an increase in charges at Target. The decrease in charges on our credit cards at third parties is primarily due to the fact that we no longer issue new Target Visa accounts.

We intend to pursue the sale of our credit card receivables portfolio and will execute a transaction only if appropriate strategic and financial conditions are met. We will classify the credit card receivables portfolio as held for sale when a transaction that allows us to meet our objectives has been agreed upon with a potential buyer.

Canadian Segment

During the three months ended April 28, 2012, start-up costs totaled $34 million, compared with $11 million in the comparable prior-year period, and primarily consisted of compensation, benefits and third-party service expenses. Additionally, we recorded $21 million in depreciation for the three months ended April 28, 2012, related to capital lease assets and leasehold interests.

Other Performance Factors

Net Interest Expense

Net interest expense for the three months ended April 28, 2012 was $184 million, including $20 million of interest on capitalized leases related to our Canadian market entry. For the three months ended April 30, 2011, net interest expense was $183 million.

Provision for Income Taxes

Our effective income tax rate for the three months ended April 28, 2012 was 36.7 percent, up from 36.3 percent for the three months ended April 30, 2011. This change is primarily due to increased losses in our Canadian Segment, which are taxed at lower rates than our U.S. earnings, slightly offset by tax benefits related to other foreign earnings.

Reconciliation of Non-GAAP Financial Measures to GAAP Measures

Our segment measure of profit is used by management to evaluate the return we are achieving on our investment and to make operating decisions. To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share, which excludes the impact of our planned 2013 Canadian market entry and favorable resolution of various income tax matters. We believe this information is useful in providing period-to-period comparisons of the results of our U.S. operations. This measure is not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The most comparable GAAP measure is diluted earnings per share. Non-GAAP adjusted EPS should not be considered in isolation or as a substitution for analysis of our results as reported under GAAP. Other companies may calculate non-GAAP adjusted EPS differently than we do, limiting the usefulness of the measure for comparisons with other companies.

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
                                       U.S.
                            U.S.     Credit      Total                               Consolidated
(millions, except
per share data)           Retail       Card       U.S.    Canadian        Other        GAAP Total
Three Months Ended April 28,
2012
Segment profit          $  1,199    $   139   $  1,338    $   (55)   $        -      $      1,283
Other net interest
expense(a)                                         162          20            -               182
Earnings before
income taxes                                     1,176        (75)            -             1,101
Provision for income
taxes(b)                                           432        (20)          (8) (d)           404
Net earnings                                  $    744    $   (55)   $        8      $        697
Diluted earnings per
share(c)                                      $   1.11    $ (0.08)   $     0.01      $       1.04
Three Months Ended April 30,
2011
Segment profit          $  1,062    $   194   $  1,256    $   (11)   $        -      $      1,245
Other net interest
expense(a)                                         164           -            -               164
Earnings before
income taxes                                     1,092        (11)            -             1,081
Provision for income
taxes(b)                                           400         (3)          (5) (d)           392
Net earnings                                  $    692    $    (8)   $        5      $        689
Diluted earnings per
share(c)                                      $   0.99    $ (0.01)   $     0.01      $       0.99

Note: A non-GAAP financial measures summary is provided on page 14. The sum of the non-GAAP adjustments may not equal the total adjustment amounts due to rounding.

(a) Represents interest expense, net of interest income, not included in U.S. Credit Card segment profit. For the three months ended April 28, 2012, U.S. Credit Card segment profit included $2 million of interest expense on nonrecourse debt collateralized by credit card receivables, compared with $19 million in the respective prior year period. These amounts, along with other net interest expense, equal consolidated GAAP net interest expense.

(b) Taxes are allocated to our business segments based on estimated income tax rates applicable to the operations of the segment for the period.

(c) Weighted average diluted shares outstanding were 672 million for the three months ended April 28, 2012, and 697 million for the three months ended April 30, 2011.

(d) Represents the effect of resolution of income tax matters.

Analysis of Financial Condition

Liquidity and Capital Resources

Our period-end cash and cash equivalents balance was $675 million compared with $1,424 million for the same period in 2011. Short-term investments (highly liquid investments with an original maturity of three months or less from the time of purchase) of $18 million and $872 million were included in cash and cash equivalents at the end of first quarter 2012 and 2011, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less. We also place certain dollar limits on our investments in individual funds or instruments.

Operations during the first three months of 2012 were funded by both internally and externally generated funds. Cash flow provided by operations was $1,307 million for the three months ended April 28, 2012 compared with $1,052 million for the same period in 2011. In first quarter 2012 we amended the 2006/2007 Variable Funding Certificate to obtain additional funding of $500 million and to extend the maturity to 2013. During the first quarter of 2012, we issued commercial paper, of which, $450 million was outstanding as of April 28, 2012. This cash flow, combined with our prior year-end cash position, allowed us to pay current debt maturities, fund capital expenditures, pay dividends and . . .