Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

Our financial results for both the fourth quarter and 2008 fiscal year reflect the impact of adverse economic conditions on our business segments. Our Retail Segment results were affected by changes in consumer spending patterns that negatively impacted our traffic and sales, particularly in higher margin discretionary categories, creating an elevated level of markdowns resulting from weaker than expected sales. Our Credit Card Segment performance, like that of other credit card issuers, was adversely affected by the deteriorating credit and risk environment. As a result, we incurred higher-than-expected bad debt expense as we both wrote-off accounts and added significantly to our allowance for doubtful accounts. In light of this challenging retail and credit environment, we have suspended our share repurchase program and reduced spending on new store construction and remodels.

Sales totaled $62,884 million in 2008, $61,471 million in 2007 and $57,878 million in 2006, increasing 2.3 percent in 2008 and 6.2 percent in 2007. Comparable-store sales (as defined below) in 2008 declined 2.9 percent from 2007; comparable-store sales in 2007 grew 3.0 percent from 2006. Credit card revenues were $2,064 million, $1,896 million and $1,612 million in 2008, 2007 and 2006, respectively, increasing 8.9 percent in 2008 and 17.6 percent in 2007. The combination of retail and credit card operations produced earnings before interest expense and income taxes of $4,402 million in 2008, $5,272 million in 2007 and $5,069 million in 2006, decreasing 16.5 percent in 2008 and increasing 4.0 percent in 2007. Cash flow provided by operations was $4,430 million, $4,125 million and $4,862 million for 2008, 2007 and 2006, respectively. Additionally, we paid dividends of $465 million in 2008, $442 million in 2007 and $380 million in 2006. We opened 114 new stores in 2008, or 91 stores net of 21 relocations and two closings. In 2007, we opened 118 new stores representing 103 stores net of 14 relocations and one closing.

Management's Discussion and Analysis is based on our Consolidated Financial