FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Dayton Hudson Corp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
777 Micollet Mall
Minneapolis, MN 55402-2055
(612) 370-6948

UNION CITY, Ca., November 24, 1996/FOOLWIRE/ --- Dayton Hudson reported their third quarter 1996 results on November 20th. The company announced net earnings of $107 million or $0.45 per share, net of a one-time after tax charge, compared with $44 million or $0.18 per share a year ago. The one time charge of $9 million or $0.04 per share is related to the purchase and redemption of debt as they previously discussed. On an operating basis earnings were $116 million or $0.49 per share. For the corporation, total revenues for the quarter increased 9% to $6.1 billion while comparable store revenues rose 2%. Operating profit for the third quarter increased 62% to $322 million.

NINE MONTH RESULTS. For the nine months, net earnings were $259 million or $1.08 per share before the extraordinary charge, compared to $83 million or $0.32 per share in the same period in 1995. Operating profit for the nine months increased 63% to $826 million, from $507 million last year.

GOOD RESULTS AT TARGET. Their third quarter and nine month results reflect exceptionally strong profit performance at Target and Mervyns. At Target, third quarter operating profit increased 82% to $213 million from $117 million last year on a 14% increase in total revenues. Target has maintained a different type of identity and the apparel cycle has been coming back which has helped them somewhat because Target is a little bit stronger in soft lines. They think building some of their brands such as Cherokee has helped quite a bit and they also give credit for perhaps a percent or so of mature store sales to their credit cards. So, it is a combination of things that has driven the success. It is their feeling that things should continue reasonably good on through 1997, unless there are economic changes. At Mervyns, operating profit increased 98% to $64 million from $33 million in the third quarter of 1995.

GROSS MARGINS AT TARGET. Gross margin rate and operating expense rate at Target both improved. Gross margin rate grew due to higher markup and favorable promotional markdowns, while the improvement in operating expense rate was attributable to strong sales leveraging and continued expense reduction efforts including improved store productivity. On the share of "ad sales" they are satisfied that they have achieved the balance they set out to a year ago as they defined their profit formula. They still have a few more brands that they are going to be adding to their compliment over the course of 1997 but they expect that by the end of 1997 they will be at roughly 70% branded merchandise. They measure ad in-stocks weekly and the performance on it has improved dramatically. By their measurements they are entering ads with around 94.5% in stock and they also track it at the end of the week to see how it progresses over the course of the week. They are satisfied that they are making progress but need to continue to work at having greater depth on key programs like Dockers and Levis.

At Mervyns, gross margin rate decreased, while operating expense rate showed substantial improvement due to reductions in store expense, marketing, and headquarters expense.

DEPARTMENT STORE DIVISION RESULTS. Financial results in Dayton Hudson's department store division in the third quarter and the nine months reflect their strategic repositioning and the company remains confident that they are on the right track. Through the first nine months they have eliminated 57 promotional days compared to a year ago and are experiencing solid increases in their sales at regular price. They are also pleased with the performance of their "better" businesses such as women's bridge sportswear, designer apparel, and men's collections. They have been a little disappointed in some of their more moderate and more promotional businesses and they have lost more there than they should. They are refining that and trying to get on top of their trend merchandising. As they build on their knowledge of what they did in this first year, they are confident that they will get some reasonably good improvement in those categories for next year. Sales for both third quarter and year to date in these categories are up double digits from 1995.

DEPARTMENT STORE DIVISION OPERATING PROFIT. On a reported basis, third quarter operating profit in the department store division was $45 million, down 10% from last year. Before a $5 million LIFO charge, operating profit was equal to last year's performance. In addition, several unique events negatively impacted this division's operating profit in the quarter. In the quarter they announced they were exiting the electronics business and they announced a reduction in their headquarters staff of 180 people. Adjusting for the charges related to these events, third quarter earnings in the department store division rose modestly compared with a year ago. Gross margin rate for the quarter decreased due to the exit from the electronics business and a variety of other factors. Operating expense rate was favorable due to expense reduction initiatives, particularly lower marketing costs.

OUTLOOK AND APPROACH TO THIS YEAR'S FOURTH QUARTER. To reflect the five fewer shopping days between Thanksgiving and Christmas they are planning sales and inventories conservatively. For the total corporation, comparable store sales are planned to be flat for the fourth quarter. By division, that translates to a low-single-digit increase at Target and a mid-single-digit decline at both Mervyns and the department store division. As they began the quarter, inventory levels were slightly lower than a year ago despite opening over 70 additional stores. And, by year end inventories are expected to be up in the range of only 4-5%. However, despite conservative planning, they believe they are well positioned as a corporation to report solid year-over-year profit improvement in the fourth quarter. They remain comfortable with the current EPS consensus estimates for the full year. Taking the kind of momentum they have enjoyed through the first three quarters of this year, it is plausible and reasonably possible for them to hit $2.90 for next year in earnings per share (current estimates are at $2.58). They think they have been blessed from an unnatural period of growth and while they think they have a very bright future, they said they would stop well short of giving confidence in a $2.90 number for next year. They expect the department store division to incur a modest LIFO charge for the year. At Target they don't expect a material LIFO credit or charge. At Mervyns it is still a little early to tell although they would say that a modest charge is more likely than a modest credit.

ITEMS AFFECTING Q3 RESULTS OF OPERATIONS. They completed an accounts receivable securitization transaction last Fall. The impact of this securitization transaction on the third quarter was to reduce operating profit by approximately $6 million and $18 million year to date. Interest expense, of course, was lower than it would have been by a corresponding amount. When they analyzed their businesses internally, they review operating results on a FIFO basis before the effect of the securitization transaction. In the third quarter, interest expense increased to $114 million from $111 million last year, continuing the trend of higher average debt balances partially offset by lower average portfolio interest rates. They expect these trends to continue throughout the remainder of the year. Specifically, their plans in 1996 project net interest expense of about $450 million, assuming continued growth in their proprietary credit card business and capital spending of approximately $1.4 billion. Corporate and other expense in the quarter was $17 million, down $1 million from last year. For the full year, they now expect corporate and other expense to be in the range of $75-85 million. Their effective tax rate for the quarter was 39.5%, consistent with the rate in the first two quarters of this year. The LIFO provision was a $5 million charge in the third quarter this year compared to a zero impact in the same period last year. All of the LIFO charge is attributable to their department stores.

KEY BALANCE SHEET AND CASH FLOW TRENDS. Accounts receivable are up $243 million compared to a year ago to just under $1.6 billion. They have now cycled their third quarter 1995 securitization transaction resulting in balance sheet comparisons which are net of $400 million of sold receivables in both years. They continue to believe that they are adequately reserved in their guest credit business given underlying delinquency trends. In fact, this business is an important contributor to their earnings growth this year. Inventory is actually down $58 million reflecting tight inventory control at all 3 divisions, partially offset by new store growth at Target. Combined with their increase in accounts payable of $49 million, this means they have sourced over $100 million in cash flow during the last 12 months out of their inventory and payables equation despite opening over 70 new stores during this time.

ASSETS AND CAPITAL EXPENSES. Fixed assets have increased $470 million net, principally as a result of new store growth at Target, offset by depreciation at all 3 divisions totalling more than $600 million over the last 12 months. They have funded the growth in their business through a combination of debt and retained earnings. Compared to a year ago, their debt has increased by $300 million and their total shareholder investment has grown by nearly $400 million. Capital expenses will be more of the same in 1997. That will mean continued expansion of Target at the approximate rate of 10% in square footage terms (65-75 stores) although the mix of store sites, given their Mid-Atlantic and Northeast expansion, will be skewed toward more expensive capital expense per site. So, capital expenses at Target should grow. At Mervyns and the department stores, there will be similar themes to this year. This year they have a plan that is between $1.4 billion and $1.5 billion and that will grow modestly next year and beyond.

TARGET'S EXPENSE REDUCTION PROGRAM. Beginning in 1996 Target initiated an expense reduction program designed to reduce its operating expense rate by 100 basis points or more by year end 1998. They specifically planned to remove $50 million in costs this year out of an overall program of approximately $200 million. So far they are running somewhat ahead of schedule and now plan to achieve $60-65 million in cost reductions this year. Combined with strong comparable store sales and expanded gross margin rates, these efforts have increased Target's operating margin to 5.5% on a 12-month moving total basis, up from 5.1% in the prior 12-month period. Even though this reflects the highest operating margin Target has achieved in many years, they expect further operating margin expansion at Target in the fourth quarter and beyond.

MERVYNS' EXPENSE REDUCTION PROGRAM. At Mervyns, their 1996 plans envisioned achieving about $80 million in expense reductions this year out of a $100 million plan. In addition they planned to restore gross margin rates to a more appropriate competitive level, particularly in the first half. While sales continue to run somewhat weaker than they like, they have fully achieved their profit turnaround objectives at Mervyns so far this year. In fact, on a 12-month moving total basis, Mervyns has earned $242 million, or 5.4% of sales compared to $114 million or 2.5% of sales in the prior 12-month period. This means that they are only about $75 million below their objective to return Mervyns to at least a 7% operating margin. Their efforts to drive sales are principally grounded by improving their trend content consistently, month-to-month, each month over 1997. They expect that in the 2nd quarter of 1997 they will begin to show consistent comp store sales growth. Additionally, by continuing to work on better and better ad in stocks, they will also enjoy a growth benefit from that. The second quarter is when they are through any reductions in their overall marketing package and that is one of the reasons they are predicting it for second quarter. They don't expect a significant increase in inventories. They are very pleased with the level and quality of their mix in their inventory base. One of the more difficult areas for Mervyns has been in the children's/infants areas. In these areas they are not going to be reducing the amount of space, but will be narrowing the assortments. They have found that the assortments have become overly broad and very difficult to support on a size/color basis. So, they will go for a more refined assortment with more depth of stock in the programs they support. It is one of the least promotional areas and they have their highest regular priced selling in infants/toddlers.

DEPARTMENT STORE DIVISION EXPENSE REDUCTION PROGRAM. At the department store division, their primary objective in 1996 has been to properly implement their new strategy to position their stores for industry standard sales growth in 1997 and beyond. In addition, they are working on a benchmarking analysis of their cost structure. This analysis will lead to a more aggressive expense reduction program in 1997 as a complement to their operating strategy. They are currently scrutinizing all areas of the company which do not impact guest service for opportunities to reduce costs. They don't have a specific number yet, but expect that at a minimum their expense initiative next year at department stores would be $40 million and probably well above that. As they clarify their plans over the next several months they will be more specific about them. Their long term performance goal of a 9% operating margin at their department stores contrasts with their current 12-month moving total performance of 5.5%. They expet to close well over half of this gap in 1997 alone.

TARGET'S EXPANSION. They have been entering Washington DC and Baltimore, Richmond VA and the Carolinas. They have opened in Buffalo NY and have announced a number of openings in the outside metro New York area (New Jersey and Long Island). They are working at real estate all through the coastal areas and are continuing to push in that direction. They don't expect to be in New England for another 2-3 years. But a major part of their growth will come from the East and Northeast over the next 3-4 years. Sales in the Richmond/Baltimore/Washington DC area have been very solid, as they have in Buffalo. They think that, given the taste level of those guests and their higher income levels, and the fact that some of the competition isn't particularly strong, they expect to continue to see very good sales results as they move through that area. In the Northeast the costs are higher, but normally the population density and the incomes are such that they expect to get increased sales volume and they have experienced that before in strong metro areas. They don't plan on changing any of their pricing structure. However, it is a fact that in some parts of the Northeast the environment is less competitive, so they would expect some slight improvement in gross margin, but most of it will come from increased volume levels.

NEW CONCEPT TESTING AT TARGET. Like KMart and Wal-Mart, they have tested the "pantry" concept and find that there are some items their guests seem to like in a Target store so they will continue to test that a little more, but it is nowhere near as extensive as the KMart project. This is items like luncheon snacks, breads, milks, and some basic things that people could pick up and save an extra stop on the way home.

UPDATE ON TARGET SUPERCENTERS. The Target Supercenters continue to be a test or experiment for them. They are pleased with what they have up so far. They have 8 up so far and will build approximately 6-8 additional next year and there are plans for another group of stores in 1998. But it's still too early to call. They have only had one of their stores open for approximately 1.5 years, another one has just been open a year, and the rest are younger than that. They are getting more profitable, are learning how to work that business. They have been pleased with the fact that, in all cases, their business on the general merchandise side of the equation has been better than anticipated. It's a little early, but overall they are pleased with the results so far.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.