Bob Ulrich - Chairman and CEO Doug Scovanner - EVP and CFO Gregg Steinhafel - President

Jeff Klinefelter - Piper Jaffray Robert Drbul - Lehman Brothers Theresa Donahue - Neuberger Berman Dan Binder - Jefferies Charles Grom - JP Morgan Chase Christine Augustine - Bear Stearns Mark Husson - HSBC Mark Miller - William Blair Adrianne Shapira - Goldman Sachs Uta Werner - SanfordBernstein Gregory Melich - Morgan Stanley Wayne Hood - BMO Capital

Ladies and gentlemen, thank you for standing by. Welcome tothe Target Corporation's Third Quarter 2007 Earnings Release Conference Call.During the presentation, all participants will be in a listen-only mode.Afterwards, you will be invited to participate in the question-and-answersession. (Operator Instructions). As a reminder, this conference is beingrecorded, Tuesday, November 20th, 2007. I would now like to turn the conference over to Mr. BobUlrich, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning. Welcome to our 2007 third quarterearnings conference call. On the line with me today are Gregg Steinhafel, President; and Doug Scovanner,Executive Vice President and Chief Financial Officer. This morning, I will provide a briefupdate on our view of the current retail environment. Then, Doug will reviewour third quarter and year-to-date 2007 financial results and describe ouroutlook for the remainder of the year. Next, Gregg will provide an update onkey strategic and merchandising initiatives for this year's holiday season aswell as 2008. And finally, I will wrap-up our remarks and we'll open the phonelines for the question-and-answer session. This morning we announced our financialresults for the third quarter of 2007. Our performance for the period includedsoft sales in our higher margin apparel and home categories, combinedwith continued solid increases in our lower margin rate consumable andcommodity businesses. This adverse sales mix produced lower than expected grossmargin dollars in our core retail operations, leading to disappointing overallearnings. In contrast, our credit card operations produced yet another quarterof strong results. During the third quarter, we continued to expand our storebase, opening a total of 61 new stores in 23 states, including 43 generalmerchandise stores and 18 SuperTarget locations. Net of closing andrelocations, these openings bring our total store count at quarter end to 1,591stores in 47 states. As evidenced by the volatility of our sales performance andthat of other retailers during the past few months, the current consumerenvironment and economic climate is somewhat more challenging than earlier inthe year. However, in contrast to the perception created by media reports, wehave not observed any meaningful change in the frequency, timing or level ofpromotional intensity within the industry compared with prior years. We remain confident in our Expect More, Pay Less strategy,our ability to stay relevant overtime by delighting our guests with uniquemerchandise designs and exceptional value, and our ability to maintainappropriate and sufficient discipline as we execute our strategy and plan for2008. We believe that we are well-positioned to continue to gain profitablemarket share in the fourth quarter and throughout the coming year. Now, Doug will review our results for the third quarter,which were released earlier this morning.

Thanks, Bob. As a reminder, we're joined on this conferencecall by investors and others who are listening to our comments today live viawebcast. Following our prepared remarks, we'll conduct a Q&A session, andSusan Kahn, John Hulbert and I will be available throughout the remainder ofthe day to answer any follow-up questions you may have. Also anyforward-looking statements that we make this morning should be considered inconjunction with the cautionary statements contained in our SEC filings. In my comments this morning, I'll discuss three topics, eachof which has important implications for our financial performance in the fourthquarter and beyond. First, I'll review key aspects of our third quarterperformance in our core retail operations. Second, I'll describe recentperformance and metrics in our credit card operations. And third, I'll providemore detail on the newly authorized share repurchase program, which weannounced this morning, and provide an update on our review of ownershipalternatives for our accounts receivable. And of course, in conclusion, I'llshare our outlook for the remainder of the year. This morning, Target announced financial results for thethird quarter of 2007. Overall, our results were disappointing as performancewithin our core retail operations fell short of our expectations, primarily dueto the effect on our gross margin resulting from softer sale of our highermargin merchandise. Our credit card operations continued to deliver stronggrowth in contribution to our profits. Let's review some of the key elements of our third quarterperformance. Total revenues grew 9.3% to $14.8 billion, fueled by thecontribution from new stores, a 3.7% increase in comparable store sales and thegrowth in revenue from our credit card operations. In our retail operations, weexperienced weaker than expected sales performance in our higher margincategories, especially apparel. Even the sales of consumables and commoditiesremained strong. Our third quarter gross margin rate was 31.9% of sales, 54basis points lower than last year. All of this net decrease resulted from asoft sales of our higher margin merchandise. And while our expense rateincreased by 14 basis points, remember that our rate analysis continues to be affectedby a couple of small financial reporting refinements that have benefited grossmargin rate and have had a parallel inverse effect on our expense rate over thepast four quarters. In other words, analytically, the magnitude of our grossmargin rate decrease was slightly greater than reported and our expense ratewas essentially unchanged from last year. Thankfully, this is the final quarterin which these refinements will have any year-over-year impact on the analysisof these rates. Our credit operations continued to deliver strong thirdquarter profit performance. Average receivables grew 19.6% over last year,faster than our pace of sales, primarily due to changing the product featuresfor yet another group of our higher credit quality Target Card accounts tobecome higher limit Target Visa accounts. This most recent wave of activityresulted in higher receivables balances due to increased charge activity bothwithin and outside of our stores. As a result of both, our increase in receivables and amodest increase in the core risk metrics in our portfolio, we increased ourreserve in the quarter by $23 million. At this level, we continue to believethat we are adequately reserved for expected losses in the portfolio consistentwith our past practice. On an annualized basis, our credit card contribution toearnings before taxes as a percent of average receivable was 8.6% this yearcompared to 8.8% a year ago. Turning to other factors on the P&L, net interestexpense in the third quarter increased $28 million from $149 million a year agoto $177 million this year, primarily due higher average funded balances,including the debt to fund our substantial receivables growth. And oureffective income tax rate for the quarter was 38.1% compared with 37.4% in lastyear's third quarter. This increase was driven by an unusually low rate in thisquarter last year. For the full year, we continue to expect our effective taxrate will increase modestly from our 2006 rate of 38.0%. Bringing all these elements together, our third quarterearnings fell short of last year's performance. Specifically, net earningsdecreased 4.4% to $483 million compared with $506 million last year and dilutedearnings per share fell 3.5% to $0.56 from $0.59 a year ago. Beyond the P&L, our balance sheet inventory positiongrew 12.2% from a year ago, faster than the 9.0% sales increase in the quarter.However, the relationship between these two growth rates was significantlyinfluenced by the shift in our fiscal calendar, which moved our third quarterend one week closer to the holiday season compared to last year, capturing agreater portion of our typical seasonal inventory build. Turning to share repurchase, during the quarter we invested$172 million to buy approximately 3 million shares of our common stock at aweighted average price of $57.29 per share. Through the first nine months of2007, we've repurchased $1.2 billion of our common stock, acquiring 19.7million shares at an average price of $60.72 per share. Since the program's inception in June 2004, we haverepurchased 90.7 million shares of common stock, representing over 10% of ourcurrent shares outstanding at an average price of $51.20 per share for a totalinvestment of approximately $4.6 billion. Weighted average diluted sharesoutstanding in the most recent quarter were more than 13 million shares lowerthan the corresponding figure last year, a reduction of more than 1.5%. As you know, on September 12th, we announced that we wouldconduct a review of the use of debt in our capital structure in the pace of ourshare repurchase activity. This morning we announced the results of thatreview. Our Board has approved a new $10 billion share repurchase program thatreplaces the remaining authorization under our previous program. Based on this morning's share price, execution of our newprogram would represent a gross reduction of more than 20% of our currentoutstanding shares. We expect to complete this new share repurchase programwithin approximately three years, and under the right combination of businessresults, liquidity and share price, I would expect to complete half or more ofthe program by the end of 2008. Part of the funding for this program is expected to comefrom an increase in the use of debt in our capital structure. Yet, we believeour execution of this program, which is independent of any specific outcomefrom the review of ownership of our credit card receivables, will allow us tomaintain a credit profile consistent with the ratings objectives we outlined inSeptember. Specifically, we said then that we expect to maintain the necessarycredit profile to preserve our long-term debt ratings within the A category. Weare confident this plan achieves that. Our September announcement also indicated that we intendedto explore alternative ownership structures for our credit card receivables. Atthis point, we're still engaged in a vigorous review, and it is premature tospeculate on any possible decision coming out of the review. We continue toexpect that we will be able to announce a decision before the end of Decemberand explain our rationale, either to sell or to maintain ownership of some orall of the receivables in the portfolio. On the subject to what would happen to share repurchase inthe event of a potential receivable sale, I would expect this possibletransaction to have only a small impact, if any, on the pace of our sharerepurchase execution, depending on how much risk is transferred to a new owner. In summary, let me combine all of these elements and sharesome additional perspective on our expectations for the full year. Year-to-datethrough nine months our comparable store sales have increased 4.3% and totalsales have increased over 9%. Our fourth quarter outlook envisions a similarcomparable store sales increase in the range of 3% to 5%, and our total salesincrease sharply lower than our year-to-date growth as we annualize the extraweek in 2006. In addition, so far this year, our gross margin and expenserate are each largely unchanged from prior year levels. Looking forward, whilewe expect some continued adverse sales mix effect on our gross margin rate inthe fourth quarter and in 2008, it should be a less important factor than inthe quarter we just completed. Separately, we're working very intently on an array ofinitiatives designed to control the growth rate of our expenses to be equal toor lower than our overall growth in sales. We expect these efforts to bearfruit in the fourth quarter and into 2008. In our credit card operations, we expect to continue toenjoy strong growth in receivables, driving revenue growth, and strongcontribution to earnings, reflecting disciplined management of our portfoliowith delinquency rates and net write-off rates most likely to remain within therange implicit in our current balance sheet reserve. As a result, we expect tocontinue to enjoy substantial strategic and financial benefits of our creditcard operations regardless of who actually owns our receivables. As you know, a variety of factors have contributed to ourbelief since the beginning of this year, that our EPS growth opportunitieswould be greater in the first half than the second half. And while we believethat our year-over-year prospects are better in the fourth quarter than the thirdquarter, our EPS growth will likely be quite modest compared to last year'sresults. We remain confident in our underlying strategy and in ourcontinued ability to generate outstanding financial performance over thelong-term. We are confident that our proven record of growth, innovation anddisciplined execution will continue to benefit our shareholders on average withdouble-digit percentage increases in EPS for many years to come. Now, Gregg will provide a brief summary of current businesstrends and describe several of our current merchandising initiatives.

Thanks, Doug. As Bob and Doug have just described, our thirdquarter financial performance did not meet our expectations. While we aredisappointed with these results, we remain confident in Target's underlyingstrategy and our ability to generate profitable market share growth in thecurrent economic and competitive environment. Our focus remains firmly centered on delivering our ExpectMore, Pay Less brand promise to our guests by providing a continuous flow oftrend rate in affordable merchandise in convenient, easy-to-shop stores, and webelieve we are well-positioned to execute this strategy in the fourth quarterand beyond. As we head into the holiday season, we are particularlyexcited about our well-balanced assortment of must-have and differentiateditems, all at an exceptional value. For example, we continue to featureexclusive collections and gift items by emerging designers in our apparel andaccessories category. Just last month, Target introduced an assortment oflimited edition shoes and handbags by Holly Dunlap under the celebrated Hollywood label, which will only be in stores for 60days. In late December, we will further reinforce our reputationfor affordable style and accessories with our introduction of Loeffler Randall forTarget, a limited time assortment of shoes and handbags by designer JessieRandall. And, earlier this week, we debuted our newest GO International collectionby Erin Featherstone, which will be available through December. The lineincludes women's fashion, jewelry and accessories, and it's characterized byfeminine detail such as ruffles, velvet and heart-shaped motif. Target is keenly focused on being the definition for all ourguest holiday entertaining needs, including food, dinnerware, home decor andholiday trim. In September, Target was honored by Bon Appétit Magazine with theTastemaker Award at its 10th Annual Award Ceremony in New York. The award recognized Target'scommitment to offering unique and differentiated home and entertainingsolutions for our guests. Again, this year we have a broad assortment of everythingour guests need to create special holiday meals and memorable occasions. In stationery, the Isabelle de Borchgrave holiday collectionfeatures elegant paper products, including tablecloth and serving bowls that makeholiday entertaining both stylish and easy. In food, Target has introduceddelicious new Archer Farms frozen [yogurt] which all bake at the same oventemperature, making preparation simple and stress free. And for the perfectmealtime ambience, Target's assortment includes elegant tableware in holidaycolors and winter designs and a variety of festive linens to compliment thetable decor. Target is also the destination for this year's most wantedgifts, including electronics, video games, toys and small appliances. Digitalcameras, LCD TVs, video game, hardware and software, and MP3 players andaccessories continue to dominate the list of hottest items in electronics Whilein toys, the safety of our guests remain our highest priority, we continue towork closely with vendors to ensure the best product in terms of both safetyand quality is on our shelves, and we are keenly focused on being in-stock ontrusted games and toys. We are also delighting our guests with a totally innovativeholiday campaign called Wow or Never. With this campaign, we are offering anassortment of 20 exclusive items available for seven days only while supplieslast, beginning on the Sunday after Thanksgiving. When guests purchase one ofthese qualifying gifts with their Target REDcard, they are automaticallyentered to win incredible prizes ranging from a new Maserati to an AfricanSafari. Just in time for the holidays, Target is also introducing aunique assortment of new gift cards, including 12 designs of eco-friendly cardmade from a biodegradable substance called PHA. In addition, we continue tointroduce innovative technology to our gift card assortment, including Mr.Magorium's Wonder Emporium design with a piano that plays music, a cardfeaturing functional holiday lights, and a card showcasing the first ever fullmotion lenticular video. As in past years, gift card sales and redemptions areexpected to drive significant traffic and transaction volume throughoutDecember and January. Our continued emphasis on delivering excitement in our ownbrand presentations and introducing new highly respected national brandassortment will also drive post-holiday traffic and sales at Target. Ourannouncement yesterday, which described our new exclusive partnership withConverse, is an example of our unwavering commitment to delight over guests anddeliver on our Expect More, Pay Less brand promise. The Converse One Star assortment, which launches inFebruary, includes vintage inspired sports lifestyle apparel for men and women,and footwear for men, women and children. We are thrilled to be partnering withNike and bringing this iconic brand to Target, and are confident that it willexcite our guests and drive incremental sales and profit. In addition to driving traffic and sales through ourdedication to innovative merchandising and distinctive marketing, we are alsointently focused on managing our inventories and being in-stock. At the end ofthe third quarter, despite softer sales in apparel and home inventories, we'rein very good condition, and we are carefully managing our flow of goods in theholiday season and as we plan our business for early 2008. To ensure that we are prepared to react quickly andefficiently in a variety of sales environments, we remain focused on findingadditional opportunities to leverage our sourcing, technology and supply chainsophistication. For example, we continued to improve our product design and developmentprocess to enhance quality and fit and increase speed to market. We continue todevelop our distribution network by adding regional and import capacity tosupport our growth, and we are pursuing opportunities to reduce inventory whileimproving in-stock levels, improving transit times and eliminating coststhroughout our supply chains, both domestically and internationally. We have always been disciplined and intentional in managingour business, even as we remain focused on creating and exploiting opportunitiesto grow our sales and gain market share profitably. As we look to the remainderof 2007 and enter 2008, we continue to embrace our culture of continuousinnovation and disciplined execution. By consistently delivering on our ExpectMore, Pay Less brand promise, we are confident that Target will deliver solidresults this holiday season and will remain relevant to our guests' overtime. Now, Bob has a few concluding remarks.

As you've just heard in detail, we continue to find new waysto delight our guests with distinctive marketing, exciting merchandise andexceptional value, and we remain optimistic about our fourth quarterperformance. We believe that Target is well-positioned to grow profitably inthis economic and competitive environment. And we feel confident that Targetwill continue to deliver substantial value for our shareholders overtime. That concludes our prepared remarks. Now, Doug, Gregg and Iwill be a happy to respond to your questions.

(Operator Instructions) Your first question comes from the line of Jeff Klinefelterwith Piper Jaffray. Jeff Klinefelter -Piper Jaffray: Yes. I have a couple of questions for Gregg. Could youprovide any more details on the comp or margin trends of apparel and home as itrelates to the average comp trends of your store right now and what impact ithad on the margins in Q3 and expected to have in Q4 recognizing the mix ispressuring comps? Are the margin trends themselves down in those categories aswell, because of promotional activity?

No. The gross margin rates in all of our business segmentsperformed well in the third quarter. And our gross margin shortfall isexclusively related to the mix impact of both apparel and to a lesser extenthome growing at a slower rate than our higher growth, lower margin categoriesin hard lines and food. Jeff Klinefelter -Piper Jaffray: Okay. In terms of the comp trends, Gregg, is it somethingwhere it's tracking well below the chain average? Are you still seeing anystabilization in the home? And what are your expectations for Q4 and into thespring season in those two categories?

Well, we still expect some sales mix deteriorations in thefourth quarter, but not to the extent that we experienced in the third quarter.In apparel, specifically, weather patterns are now more normalized than theywere in September, October. As you know, we had record high temperaturesthroughout the nation at that time, and they are reasonably normal. So weexpect some slight deterioration, but not to the same magnitude in apparel. Our home business actually has been performing pretty well,softened up a little bit in the third quarter and we expect that to remainsomewhat soft until some of the housing issues go away or, at least, diminishin terms of magnitude.

Let me put a little color around that. As you know, onaverage, across the last decade, our lower margin businesses have grown fasterthan our higher margin businesses. In an average year, that puts, give or take,20 basis points of mix related adverse effect into our gross margin rate. Wewere running higher than that through the first two quarters. But as I mentioned in my remarks, all of the gross marginrate deterioration in Q3 was mix related. So this mix issue, Q3 this year, wasclearly the most significant mix affected quarter that we've had in many, many,many years running, about triple the adverse mix effect of an average quarter. Jeff Klinefelter -Piper Jaffray: Okay. Thank you. One other question is in terms of thesourcing and inflationary pressures, there are some concerns coming,particularly out of China,with inflation on cost. Could you comment on how you see that affecting yourmargin trends the rest of this year and into next year on apparel and the discretionarycategory, but also overall, I think you're looking at some opportunities, thehard lines for sourcing benefits as we move forward?

We're experiencing cost pressures right now that willmanifest in the first and second quarter of this year, and it's both domesticand international. We've got a very balanced sourcing portfolio and our apparelexposure in Chinais rather modest, to be honest with you and we have apparel sourcing that isdispersed throughout the world. So, we really don't expect much impact in the apparel world.We're experiencing it more in the hard line categories, raw materials, steel,wood, energy-related categories like plastics, storage and in food. In the pastyear or two, we have been able to pass along these costs increases in the formof higher prices. The marketplace had been receptive to that and we hope thatthat type of receptivity continues into '08. Jeff Klinefelter -Piper Jaffray: Thank you.

Your next question comes from the line of Robert Drbul withLehman Brothers. Robert Drbul - LehmanBrothers: Hi. Good morning. I just have two questions. The first oneis Doug, can you put a little bit more detail into the receivables portfoliogrowth, the 19.6%? And essentially, can you just give us a little bit, a fewstatistics around the credit worthiness of the changes in the increased creditbalances that you're seeing and have given out?

Bob, as always, there are a lot dynamics in the portfolio,but the single biggest driver of the acceleration in the growth of receivablesis that of our most recent wave of executed product changes. Product changes isthe terminology that we use to describe when we take a look into our Target Cardprofile and convert an offer to convert to the guest those cards that arehaving the features of our Visa card sharply higher available to buy andtypically lower rates and so forth. This has been a more efficient conversion than priorconversions. The credit quality is the same and the guests are responding byusing the card both, in the store and outside the store in a typical mix ofpurchases. It means that, for example, our penetration rates, the percentagesof our Target store sales reflected on any one of our array of cards isactually, flat to up ever so slightly in contrast to a more typical trend ofbeing down. The increase in the balances is in a higher weighted average bandof FICO scores than the weighted average in the portfolio. Having said all of that, clearly, there are some unrelatedto this conversion issues developing in our portfolio and candidly in theportfolios of everyone else we follow that are somewhat adverse. And therefore,we felt that it was appropriate in light of all of that activity, to increaseour reserve this quarter, both as a reflection of the higher size of theportfolio and also as a reflection of some of these modest upticks in risksmetrics. Robert Drbul - LehmanBrothers: Okay. Thank you. And a question for Gregg on the inventory,are there any pockets of inventory that you are concerned about as you headinto the fourth quarter?

In all honestly, we have managed our inventories very, verywell in the second and third quarter. We had anticipated somewhat of a slowdownin the sales environment and reduced our receipts in the third quarter when wewere in Q1 and Q2. So, aside from being a little heavy here or there, inpockets it's even hard to describe what pockets. There are certain businesses we'rea little over and certain regions where we might be a little over. But overall,it's relatively immaterial in the scheme of things. Robert Drbul - LehmanBrothers: Thank you. Good luck.

Next.

Your next question comes from the line of Theresa Donahue withNeuberger Berman. Theresa Donahue -Neuberger Berman: Good morning, everyone. I just have a quick question on theexpense line, which was very impressive. Could you give a couple of exampleswhat areas that you're looking for opportunities, especially since we hadn'tseen much progress prior at higher comp level?

I'll start and maybe Doug wants to add some. This is acompany-wide initiative. We are looking at our expense opportunities in ourheadquarters, supply chain property development, marketing and in-stores, bothexpense and productivity. So we're really taking a comprehensive view to bettermanaging our expenses and productivity centers going forward. Theresa Donahue -Neuberger Berman: Okay.

There is no one issue in expenses that dominated orcharacterized the key driver of our ability to control this quarter. As usual,some issues up, some issues down in basis points, but we're entering a periodwhere we are putting much more intense focus on making sure that our operatingexpenses grow at no faster than the pace of sales. Theresa Donahue -Neuberger Berman: Thank you.

Your next question comes from the line of Dan Binder withJefferies. Dan Binder -Jefferies: Hi. Good morning. I have just a couple of questions oncredit. Last quarter, I think you had cited that some of the excess receivablesgrowth or I should say that some of the receivables growth in excess of saleswas driven from purchases outside the store. It sounded like that continued abit this quarter but you had this other issue that you talked about in terms ofthe product change. I was just wondering, is there a way to quantify of thereceivables growth, how much of that did come from growth outside the store. And then, secondly, in terms of thinking about reservesgoing forward is there a rule of thumb we should be thinking about in terms oftargeting bad debt reserves? Is it going to be 25% higher than write-offs ormaybe some metric that we could use in that front?

The answer to your first question actually lies on our cashflow statement every quarter because we split the growth imbalances created byuse of the cards inside our store on to a separate line from the growthimbalances attributable to use outside the store. There is some seasonality tothat mix. But, generally speaking, that's a fairly constant relationship with,give or take, 25% or 30% of the charge activity on the cards taking place inour stores and imbalance taking place outside our stores, nothing new here thisquarter. Separately, on your question regarding relationships, ourfocus on the allowance as a percent of quarter end receivables, today, we lieat about 7%. That metric has some seasonal influence. So that metric typically,is lower in our fourth quarter than in any of the prior three quarters thatwill likely remain intact this year as well. We constantly monitor the risk metrics underpinning theportfolio and will adjust that reserve as appropriate ongoing to maintain avery consistent reserve, relative to the risks that underpin the receivables.As I look forward, I don't think that this will create any kind of meaningfulproblem. But, yet, I would observe there's no doubt that there are someflashing yellow lights on the horizon much more broadly than just ourportfolio. I think we're fully, adequately reserved today. Dan Binder -Jefferies: Okay. And then just a follow-up to Terri's question onexpenses, obviously, the biggest opportunity when sales slow would be, atleast, judging from what I've seen in the past, would be that you manage thelabor in the stores to those levels and during periods of very healthy comps,the stores look absolutely fantastic. I am just curious what kind ofchallenges, if any, you face in keeping the store's standards up as comps slowand perhaps it's necessary to cut back on some of that labor. Is there any wayyou can manage that and still keep the stores in as good a shape as they werelet's say, a year ago?

Yes. Clearly, we remain absolutely committed to delightingour guests with a superior shopping experience, and have no intention at all inlowering our standards. Whether it's our brand standards, our in-stock levels,our wait times, our friendly help within our stores, we remain highly committedto delivering a superior experience. Having said that, as sales soften, we have opportunity toreduce the number of seasonal hires and just, more carefully, manage theexpense line as it relates to reduced traffic levels and sales around this timeof the year. So we're going to a very thoughtful process, making sure that webalance our short-term and long-term needs of the business and the guests withthe expense opportunities that we identify. As Doug said, there is a combination of things that we'regoing to look at. There is no one thing within our stores that we can point tosay this is where we're going to singularly focus our efforts. It's acombination of many, many work centers that we're going to be looking at in termsof saving some expense out of our stores.

Very specifically, lower rates of sales drive lower need forwork in the areas of receiving, replenishment, cashiering. And so, we canmaintain the same standards that are so important to our brand, while incurringfewer hours worked in the stores when fewer units are flowing through thesupply chain inside the store.

I would also point it out that we have made majorinvestments in logistics and technology in our stores over the last severalyears and that those are enabling us to become significantly more productivegoing forward. So we remain committed 100% to a great guest experience andwe're confident we can deliver that at the same time we're reducing expense. Dan Binder - Jefferies: Great, thanks.

Your next question comes from the line of Charles Grom withJP Morgan Chase. Charles Grom - JP MorganChase: Thanks. Good morning. Doug, I was wondering if you cancomment on what your inventory growth was in the quarter, if you would excludethe calendar shifting, and also, if you'd be willing to quantify the actual mixof home and apparel in this quarter versus a year ago as a percentage of sales.

About two thirds of that growth differential is due to thecalendar shift. So there really isn't anything significant about therelationship between growth and inventory and sales, absent that shift. And I'mafraid you'll have to repeat the second question. Charles Grom - JP MorganChase: Just the overall mix in the quarter as a percentage of salesif you were to combine home and apparel, just how much did it increaseyear-over-year?

In terms of inventories? Charles Grom - JP MorganChase: Just in terms of sales, the actual sales mix.

In terms of our sales mix, those two categories representeda lower portion of our sales this year than last year. As I mentioned, slowergrowth in those categories was responsible for, on a net basis, all of thedecline in gross margin rate. Charles Grom - JP MorganChase: Okay. I got you. And then, just switching to the balancesheet, in order to fund the buyback program, could you speak to how high you'rewilling to take up some of your leverage ratios maybe adjusted EBITDA orleverage part of the overall debt-to-cap?

I always marvel when people translate what is a very complexset of discussions across three ratings agencies into a handy metrics likethat. We are not specifically focused on any one individual credit metric. Ibelieve the pace of this program, the size of this program has beenspecifically designed after discussions with all three agencies to maintain thecredit profile that we seek to maintain. But it's not a straightforward asfocusing on one key metric. If we did so, and blindly ran our business to thatmetric, I don't think any of us would be very happy with the outcome. Charles Grom - JP MorganChase: Alright, fair enough. And then, one more question for Gregg.Yesterday, you announced that November was on plan. I am wondering if there isan improvement. It sounds like the environment is giving you more confidenceand if you could speak directly to trends in some of those areas that were weakin October, home, apparel and toys?

Well, even though they are on plan, they are still somewhatmore modest in terms of sales expectation compared to our original plan threeand six months ago and we're seeing balanced sales across the chain. We've seenapparels strengthen as weather patterns normalized. Our home businesses areperforming about where they have in the past and the balance of the businesseshas been performing well. We expect the electronics business to continue tooutpace the company that has been strong all year and continues to be very strong.So we expect it to be a bellwether season there. Our toy business has been somewhat volatile. There has beena lot of recall activity that has caused our consumer to be somewhat cautiousin this particular category with sourcing strength in other categories, as theymigrate to less traditional toys. But, having said that, the toy businessstarted to strengthen this month as well, so, we're cautiously optimistic that,overall, we're going to have a decent holiday season. Charles Grom - JP MorganChase: Thanks. Good luck.

Your next question comes from the line Christine Augustinewith Bear Stearns. Christine Augustine -Bear Stearns: Thank you. Doug, could you talk about just overall expensetrends, benefits, utilities, maybe real estate costs, what you might be seeingso far this year versus the average of the last few? And then, if possible,could you give us your preliminary thoughts on where those expense trends mightgo in '08?

Well, the great news is year-to-date this year not only ourexpense is well-controlled as a percentage of sales, there really isn't anysignificant category that's moving the needle meaningfully in either direction.We're down to single digit basis point movements across the board. And one ofthe reasons that I'm quite encouraged about that is that, of course, we'reoperating in an environment where sales have slowed to a pace below of what wehad forecasted at the beginning of the year, said differently, that issometimes the recipe for hitting our dollars budgets and missing the mark interms of a basis point analysis. Having said all of that backup, certainly, there are someinflationary drivers in the expense base, utilities and property taxes, and toa lesser extent medical expenses would be among the more onerous drivers. Thesingle biggest variable, of course, always remains the number of hours of laborthat we choose to employ with our teams in our stores. There are a couple ofthings that are beneficial as well. Marketing expense, for example, on ayear-to-date basis is actually, slightly favorable despite the fact that it wasunfavorable in the quarter due to timing issues. Christine Augustine -Bear Stearns: And would you be willing to give any preliminary thoughts on'08 as you look to your planning process? Do you think there will be anymaterial changes in these line items?

No. I don't. I think that as Gregg indicated, we're takingour time to perform an intensive review across the board, and there are nofundamental changes that we are intending to dial in here. We're just carefullyfocusing on making sure one line item at a time that we're dialing in the rightexpenses relative to the pace of our business, while paying particularattention to maintaining the brand standards that are so important to us. Christine Augustine -Bear Stearns: How about your views with regard to new store openings? Asthe environment softens, would you maybe try to take advantage of that and,perhaps, accelerate, or in this kind of environment, do you look to maybe scaleback a bit? I'm just wondering how you view at this time around versus priordownturns in the economy.

We have a very, very steady hand on the throttle at the realestate helm. Obviously, if there were substantial bargains to be had in thekind of real estate that we seek, we'd be delighted to accelerate our storeopening program. There are lead times that need to be respected. So thatcertainly wouldn't affect '08 or even hypothetically, '09. But I think that's afalse premise. There is no discernable reduction in commercial real estateprices for the kinds of land that we seek to develop, quite the contrary is inthe case for some period of time. We are very unlikely to materially, or even meaningfully,change the pace of capital reinvestment that we think is the right pace for ourbusiness. That would take a very sustained period of softer performance to haveus rethink the value of those kinds of strategically important investments. Christine Augustine -Bear Stearns: Thank you.

Your next question comes from the line of Mark Husson withHSBC. Mark Husson - HSBC: Yeah. Back to procurements a little bit, you have said thatindividual categories had quite good gross margin performances. Could you alsotell us what you did to get them? And from our metrics, it looks like you'vespread your sourcing out to other countries away from China, more India andother Asia, and perhaps you've gone direct more. Can you update us on thedirect percentage and other sourcing, including USA, by the way?

Direct import percentage remains around 30% to 31%. We hadramped that up aggressively over the last four or five years. And we have nowreached a point where it's going to grow at a much slower rate, probably in theneighborhood of 50 to 100 basis points a year. So, I would not expect largechanges in our direct import percentage. And as we've said, we've got abalanced portfolio of sourcing, both domestic and internationally and we shiftand make adjustments based on a variety of conditions. Our gross margin rates were well-balanced across all of ourcategories. So we made our gross margin rate expectations in home, apparel,food and hard lines. And so that's the combination of a lot of different thingsthat we do to manage the margin rates, whether it's saving markdowns orfocusing on cost reductions or investments in our promotional markdowns. It'scombinations of things that enabled us to make our gross margin rates bybusiness segment. Mark Husson - HSBC: And it sounds like fuel price inflation and also the genericenvironment has not been damaging in the quarter as far as gross margin ratesare concerned.

It wasn't that. We've seen inflationary pressures kind ofebbing and flowing throughout the year. We faced more pressure early in theyear. It somewhat abated in the second, third and fourth quarter. But we areexpecting that to accelerate again in the first and second quarter of nextyear.

It's only a slight oversimplification for all of us to thinkabout our gross margin rate in the lower middle 30’s, as simply being thealgebraic blend of, give or take, 40% of our sales with gross margin ratescategory-by-category that are in excess of 40% and about 60% of our salescategory-by-category with gross margin rates of 25% more or less. The entiregross margin rate issue year-over-year in this quarter is the algebra behindthat blend. Across the board, we enjoyed, give or take reasonably similar grossmargin rates to last year's gross margin rate category-by-category. This is alla sale mix issue in the quarter. Mark Husson - HSBC: Given that they're quite different from each other, thosetwo gross margin groups, are you doing something overtime that is going tomeaningfully accelerate the amount of gross margin you'll get from the 25%category and does that have any implication for the return on invested capitalovertime?

Well, I think this mix issue is actually misleading morethan it's helpful because this chain remains very healthy financially overtimeto the extent that we can maintain 3% or 4% same-store sales growth in thehigher margin categories. But, of course, the lower margin categories enable usto be able to do that. And so, I'd be thrilled with the horrible mix problem of10 comps in the lower margin businesses and five comps in the higher marginbusinesses, because even though those that follow rates would be disturbed, thebottom-line would be gushing profitably. Mark Husson - HSBC: That's helpful. Thank you.

Your next question comes from the line of Mark Miller withWilliam Blair. Mark Miller - WilliamBlair: Hi. Good morning. I just wanted to clarify the inventory ona same calendar basis. Are you saying that inventory would be up 4% were it notfor the calendar shift? And then, I know sometimes there are other anomalieswith inventory on the boats coming across, what would be the same calendarsame-store inventory growth?

First half of your question, yes, our inventories would havegrown slower than sales if it were not for the calendar shift. That's howimportant a week is in our inventory picture at this time of the year. Yourquestion about the boats was not clear to me. Try me again. Mark Miller - WilliamBlair: Well, just on a same-store basis, I know in the past, as youhad timing of receipts, product coming across from outside this country thathad impacted the inventory levels, what's the same-store inventory growthlooking at that?

Well, our picture of inventory, at any point in time,includes inventory that's in transit on the ocean by and large because wealready own substantially, all of that inventory. So the balance sheet includesall inventory that we own regardless of where it is in the globe. So it'sstraightforward to answer your question by correlating the 4% increase ininventories to the slightly higher increase in our store counts to observe thatinventories on a comp per store was slightly down, flat to down. Mark Miller - WilliamBlair: Great, thanks. And then, could you talk about the trendsacross the good, better, best spectrum, particularly in home and apparel? Andas you've seen the slowing, is that slower rate of unit off take or you'reseeing any change in the rate at which the consumers are willing to trade up?

It's somewhat of a mix bag. We are seeing actually theconsumer trading up slightly in apparel. The same dynamics are true in the hardlines and food side of our business, and there is somewhat of a slight tradedown in the home area. For example, we see stronger performance in our basicbedding area rather than our collection bedding area. So more of the trade downis happening in the home but the balance of the business we don't see any tradedown whatsoever. Mark Miller - WilliamBlair: And then, final question, Gregg, can you talk how thatrecent experience would impact the way you think about assortment for 2008 andare you making changes at this point?

We're not making material changes to our assortment. We'veworked really hard in getting the appropriate balance of good, better, best. Wethink this is more temporary in nature and that, over the long-term, ourcurrent mix of assortments is about appropriate for what the business potentialis. So, we're going to make some adjustments, but overall, we're prettyconfident that we have the right mix. Mark Miller - WilliamBlair: Great, thank you.

Our next question comes from the line of Adrianne Shapirawith Goldman Sachs. Adrianne Shapira -Goldman Sachs: Thank you. Just first-off, talking about the morechallenging environment, could you share with us any regional differencesyou're seeing in performance?

Really, there are just a few parts of the countries that area bit slower. Florida has been a little bit slower, a little bit of the inlandsouthern part of California has been a little bit slower, and a touch in theOhio, Michigan, Indiana area. But overall, the rest of the country is pretty well-balanced. Adrianne Shapira -Goldman Sachs: Okay. Doug, you had mentioned, obviously, the initiativesfocusing on expenses. Could you remind us the level of comps you needed tobegin leveraging expenses what that was, and perhaps, going forward, what theopportunity in terms of that number coming down?

Well, this is a very crude shorthand. But with that spiritin mind, the answer to your question is, I think, we have historically operatedwith the need for about a 4% to 5% same-store sales performance to neutralizeSG&A as a percent of sales. And clearly, we're working very hard to bringthat range down by 100 to 200 basis points. Adrianne Shapira -Goldman Sachs: Okay, great and then just the last question. I know youdescribed qualitatively direction of the segments we are heading into thefourth quarter, but in light of the third quarter performance and perhaps, thebuyback activity, could you just update, perhaps, your view on the year? Ithink the last we have heard is lower than 360, but perhaps, any update onguidance for the year?

Well, as you know, we have not provided specific guidancefor any quarter this year and the fourth quarter is no different. The best Ican do to answer that question is to have you take our year-to-date performanceand add to it the outlook for the fourth quarter that I gave earlier,specifically, that we expect a very modest EPS increase in the quarter. Let's not lose sight of the fact that we have talked manytimes in the past about the $0.02 to $0.04 per share that we earned in theextra week last year. That missing week means that our year-over-year salesgrowth in total, not comp, in total during the fourth quarter, will be a low tomid single digit figure. So that's a very important feature in understandingwhat's going on with our EPS growth this quarter, both in our core retailoperations and in our credit card operations, that extra week createdprofitability last year. AdrianneShapira - Goldman Sachs:

Your next question comes from the line of Uta Werner with SanfordBernstein. Uta Werner - Sanford Bernstein: Good morning. Doug, I wonder if you could please comment onhow new stores have done over the past two months and specifically, theproductivity ramp-up that you've observed?

Typically, our experience in the last couple months is nodifferent from our experience in the past. Our new stores typically, are anexaggerated example of what's happening in the rest of the chain. When the restof the chain is healthy, our new stores typically open much more strongly andwhen sales are weak, our new stores open even weaker. This is not a new issue,nor at all disturbing. These new stores are terrific investments that will paysplendid dividends moving forward. Uta Werner - Sanford Bernstein: Could you also maybe remind us on how remodeled stores arecomping, relative to un-remodel stores?

Well, we really look at our remodels in a couple ofdifferent ways. In remodels, where we expand the footprint of the buildingitself, we are seeing dramatic increases, consistent double-digit increases inour comp store sales before and after the remodel. In remodels that occurwithin the shell of the building and we are not dramatically expanding thesales, but we see more modest, but still the kinds of sales growth necessary tosupport the investment in that remodel. So we're pleased with both thein-the-box and expansion remodel program. Uta Werner - Sanford Bernstein: Thank you. I have a different question related to grossmargin, specifically, on consumer electronics. I wondered if you can update uson what's the current level of service contract attachments, want to have yourlevels of returns be and how do you recover on the returns?

The attachment rates, we've now had our ESP program in placefor about a year and we continue to see gains in our attachment rates onaverage. When you're across the board in all categories, we're seeingattachment rates in the low double-digit area, and when you specificallyzero-in on categories like LCD or more expensive LCD televisions, we're seeingvery healthy attachment rates of over 30%. Uta Werner - Sanford Bernstein: And in terms of return?

We're not seeing any appreciable change in our return ratesin any product categories. Uta Werner - Sanford Bernstein: Great. On the same line of question here, to what extent doyou expect significant revenue to come from selling pre-owned electronics onthe Internet?

That is a test program for it. And it's very, very, verytiny and totally insignificant as it relates to the sales impact on either atthe dotcom business or the corporation's business.

I'll add two more verys to that answer. Uta Werner - Sanford Bernstein: Is that pre-owned merchandise, fundamentally returnedmerchandise?

It is returned and refurbished and it is a test that wasinitiated, I think, approximately 30 days ago. And we have not made a decisionwhether or not we're going to continue this or not. Early indications are it'sbeen very positive. But again, it's very, very, very insignificant.

Borne out of the fact that a substantial portion of returnedmerchandise is in perfect working order.

It was very [smart to answer]. It was really only an iPodthing. So it's just not relevant. Uta Werner - Sanford Bernstein: Great and my last question in the same spirit, to whatextent can you comment on how the Internet has been doing?

Our Internet and dotcom business has been having a very,very good year. We're very pleased with the business. But like the storesbusiness, we have seen it slow down. And our sales rates have moderatedsomewhat compared to the very robust increases we were seeing in the earlyparts of the year.

Okay. We have time for questions from two more people.

Your next question comes from the line of Gregory Melichwith Morgan Stanley. Gregory Melich -Morgan Stanley: Hi, thanks. Gregg, earlier in the year you mentioned thatyou got pretty conservative on the buying for the second half and that seemsto, at least, help control the inventories. How do you see the buyings earlynext year and we'll take a look past Christmas right now, but what's your planthere?

Well, we're looking well past Christmas at this particularof point in time based on the lead times in our business. So, we're expectingthat, at least, what I would say for first quarter for sure and probably intothe second quarter, we expect the soft sales environment to continue, and thatthe discretionary categories like apparel and home will be under more pressurethan the hard lines and food categories. So, we pulled back our receipts inthose businesses to reflect rates of sale that are going to be more modest thanwhat we've experienced in the past. Gregory Melich -Morgan Stanley: And so, I guess as a follow-up on that, if gross margin ismade to improve from the shift as it was all mix in this quarter, how does thathappen, if we expect home and apparel will continue to just stay comp zero, forexample?

Well, this is where we're planning the business. We haveample inventory as part of our base inventory that can support sales growthinto the mid comp range. And so, we're very confident that we can be in-stockand can support an increased sales activity. Secondly, we will experiencegreater sell-through levels in our apparel and home areas if we perform better.So rather than selling through three quarters of our assortment beforemarkdown, we'll see greater sell-through rates which yield higher profitabilityrates, if this should happen.

In addition, as you know Greg, we're never satisfied withsimply maintaining gross margin rates other than mix. So we will continue tohave significant focus on all of the core drivers of margin rate withincategories ranging from benefits to markup associated with global sourcing,penetration increases to programs designed to control markdowns and inventoryshrink and so forth. The fact that we're net even on all of the rest of thatactivity in this quarter doesn't mean that we are satisfied with being net evenexcluding mix. Gregory Melich -Morgan Stanley: That's great. And just to make sure I'm clear on that, whenyou say the softness will continue, that means you would expect comps tocontinue to run three to four into the first and second quarter or would it beanother downtick?

Well, we haven't issued specific guidance for thattimeframe. So I think that's a little premature to get that specific, but weexpect continued pressure in categories like apparel and home. Gregory Melich -Morgan Stanley: Okay, great. Thanks.

Last question, please.

Your final question comes from the line of Wayne Hood withBMO Capital. Wayne Hood - BMOCapital: Good morning, Doug. I guess I wanted to come back to credita second. Everybody can't agree on the economics or control in this transaction,would you be willing to let go and just to do a big securitization of thatportfolio or would you just keep it as…

I missed the front half of your question. I understood theback half. Wayne Hood - BMOCapital: Yeah. I was just wondering, everybody can't come to anagreement on shared economics and control and things like that, would you bewilling to let go and just do a large securitization of those receivables thatyou continue to manage with through that structure.

In the hypothetical event that we do not find the economicsto be attractive while shifting a substantial amount of the risk of ownershipof this portfolio through a third-party, in that event we would, of course, paycareful attention to what is the most effective way to fund this portfoliomoving forward given that in that event we would continue to own all of therisks. I would expect to continue to own all of the profitability out of theportfolio as well. But we would, of course, look at an array of financingalternatives relative to the status quo. But the status quo has proved to be avery effective method of funding that portfolio in the past. Wayne Hood - BMOCapital: Second question is kind of related to that, if you look atthe aging of the portfolio in the current quarter, it looked relatively flat.Yet, as you talked about the reserve is up, write-offs were up. Are you seeingthe current files, the ones that are not falling pass due filing for bankruptcyare charging off? That's unexpected because that's one thing that kind ofsurprises you, those current accounts going past towards (inaudible) chargethem off or no.

There is nothing surprising going on there and I'm afraidwe're into double overtime. I'd be more than happy to follow-up with anyone onthe line with more detail on that issue or any other issue as the dayprogresses. I think Bob has a few closing remarks.

Well, that concludes our third quarter 2007 earningsconference call. As Doug mentioned, he, Susan and John are available anytimeduring the day to answer any additional questions. And I would like to thankyou all for your participation.

Thank you for participating in today's conference call. Youmay now disconnect.