Aug. 21 (Bloomberg) -- Target Corp., the second-largest U.S. discount retailer, said earnings rose 13 percent, matching analysts' estimates, on sales of its more profitable lines of clothing and gains from its credit-card unit.

Target reiterated today that annual profit would climb to about $3.60 a share and said it was taking a ``conservative'' approach for the rest of 2007. Last week Wal-Mart Stores Inc. cut its forecast on concerns about sluggish consumer spending.

Target has outpaced Wal-Mart and Sears Holdings Corp., the largest U.S. department-store chain, by luring customers with exclusive apparel without cutting prices as higher gasoline costs and housing expenses curb growth.

``It's been a tough environment, but they seemed to have been driving traffic,'' said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich, with $11.9 billion in assets including Target shares. ``I'm continually impressed at how well they execute on the displays and the merchandising.''

Net income climbed to $686 million, or 80 cents a share, the Minneapolis-based company said today in a statement, matching analysts' estimates. A year earlier, Target earned $609 million, or 70 cents.

Revenue increased 9.5 percent to $14.6 billion, the company said. Credit-card proceeds rose 17 percent to $453 million, making up 3.1 percent of the total, compared with 2.9 percent a year earlier.

Share Performance

Target rose $1.01, or 1.7 percent, to $60.10 at 4 p.m. in composite trading on the New York Stock Exchange. The shares have gained 5.4 percent this year, compared with a 5.4 percent decline by Wal-Mart and a 6 percent drop by the 29-member Standard & Poor's 500 Retailing Index.

Sixteen analysts surveyed by Bloomberg estimated average second-quarter profit of 80 cents a share. For the year, 24 analysts were estimating $3.63.

Sales of back-to-school items got off to a ``slower than expected start in the month of July'' and have since picked up, President Gregg Steinhafel said today on a conference call with analysts and investors.

``We are planning our business more conservatively'' in terms of how the company manages inventory and calculates demand for basic necessities given concerns about consumer spending, Steinhafel said.

Spending Concerns

Wal-Mart and Home Depot Inc., the two biggest U.S. retailers, said last week that the U.S. housing slump and rising energy prices would damp earnings growth the rest of the year.

Same-store sales rose 4.9 percent, the 12th consecutive quarter Target has outpaced Wal-Mart.

Target may come under pressure to sell its credit-card unit from activist investor William Ackman who last month disclosed that his Pershing Square Capital Management LP controls a 9.6 percent stake in the company and will seek talks with executives to boost its stock price.

``We'll go out on a limb and fathom that such a meeting wouldn't last all that long,'' Robert Buchanan, an analyst at A.G. Edwards & Sons in St. Louis, wrote in a report today.

Buchanan cited a ``better-than-expected showing by Target's superbly run'' credit-card unit as one of the factors helping to boost profit. He rates shares ``buy.''

Ackman Plans

Analysts including Adrianne Shapira of Goldman Sachs Group Inc. said Ackman may also lobby for the company to sell some of its real estate. Ackman hasn't divulged his plans.

Gross margin, or the percentage of sales left after subtracting the cost of goods sold, widened to 33.4 percent from 33 percent a year earlier as the company made fewer markdowns on merchandise.

August same-store sales are rising within its forecast range of 4 percent to 6 percent, Target said yesterday without providing any details.

The company operated 1,537 stores, all in the U.S., as of Aug. 9.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net.

Last Updated: August 21, 2007 16:11 EDT