Fitch Ratings Affirms Target At 'A'; Rating Outlook Stable.

Business Editors

Fitch Ratings has affirmed its ratings of Target Corporation's senior notes and bank facility at 'A', and commercial paper at 'F1'. Approximately $8.7 billion of debt was outstanding as of May 4, 2002. The Rating Outlook is Stable.

Target Corporation's (TGT) ratings reflect the strength of its growing Target Division and its solid financial profile. The ratings also consider the rapid growth of the company's credit operations, and the weaker performance of its two smaller divisions in an intensely competitive retail environment.

The Target Stores Division has successfully differentiated itself as the upscale discounter, and has generated strong comparable store sales growth of 4.1% in 2001 and 6.8% in the first quarter of 2002. Solid sales momentum is expected to continue over the balance of the year, though not at the pace achieved in the first quarter. TGT's strong results have offset inconsistent performance at its other two divisions - Mervyn's and Marshall Fields - which represented 14% of consolidated operating profits in 2001 compared with 41% in 1993.

TGT's credit profile is expected to remain solid despite a continuing high level of capital spending. Higher capital expenditures are supporting faster growth at the Target Stores Division, which is building out the 35 former Ward's store sites acquired in 2001. Following these openings, the pace of square footage growth is expected to decline from 12% in 2002 to the targeted level of 8-10% in 2003 and beyond. About 40% of the company's square footage growth in 2002 represents new SuperTargets, which combine a supermarket and a discount store under one roof. While there were only 62 SuperTargets out of a total of 1,053 Target stores as of year-end 2001, they will represent a meaningful proportion of TGT's growth going forward.

TGT's credit business is also growing at an accelerated rate as the company continues to add new Target Cardholders and convert its better Target Cardholders to the Target Visa. TGT had $4.1 billion of receivables as of year-end 2001, up 41% from the prior year. TGT is not compromising its credit standards to achieve this growth, and asset quality measures have remained steady.

Rapid growth of the credit business has driven consolidated leverage higher, given that the credit business is leveraged at 88%. Adjusted debt/EBITDAR increased to 2.6 times (x) in 2001 from 2.2x in 2000, due to faster receivables growth, heavier capital spending, and the impact of bringing $800 million of securitized receivables back on-balance sheet. Fitch expects that TGT will maintain steady leverage within its credit and retail businesses, but that consolidated leverage will move modestly higher over the near term due to the changing mix of the businesses.

As a result of TGT's heavy investment in fixed and working capital, management's near term plans incorporate very little share repurchase activity. Going forward, TGT is expected to balance its growth plans and share repurchases with its desire to maintain a strong financial profile.