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Target Net Rises 14%; Sales ‘Softer’ Than Estimated

Target Profit Forecasts Meet Estimates
Target has focused on lowering costs to squeeze more out of sales of electronics, clothing and other items. Photographer: Tom Starkweather/Bloomberg

Target Corp., the second-largest U.S. discount retailer, posted a 14 percent profit gain that met analysts’ estimates after earnings at the credit-card unit increased.

Target said today that net income rose to $679 million, or 92 cents a share, meeting the average of estimates compiled by Bloomberg. Second-quarter sales came in “softer than expected,” Chief Executive Officer Gregg Steinhafel said in a statement.

Shoppers in the U.S., where all Target’s stores are located, lost confidence after the economy shed more than 350,000 jobs combined in June and July. Target vies for customers with Wal-Mart Stores Inc., which yesterday boosted its annual earnings forecast even as comparable-store sales dropped at its namesake locations in the U.S.

“Expectations have run up on Target, and that’s counter to what happened with Wal-Mart,” said Brian Sozzi, an analyst with Wall Street Strategies Inc. in New York. That led investors to focus more on Target’s sales than on the improvements in the credit-card business, said Sozzi, who has a buy rating on the shares.

Target, based in Minneapolis, fell $1.05, or 2.1 percent, to $49.88 at 10:10 a.m. in New York Stock Exchange composite trading. The shares had gained 5.3 percent this year before today.

Sales at stores open at least a year climbed 1.7 percent, while total revenue advanced 3.1 percent to $15.5 billion in the three months ended July 31. That compared with the $15.6 billion average of analyst estimates. Profit was $594 million, or 79 cents a share, in the year-ago period.

Gaining Share

“Our retail segment generated strong profitability,” Steinhafel said in the statement. “Regardless of the pace of recovery, we are well-positioned to continue to gain profitable market share.”

Profit from the card unit more than doubled to $149 million last quarter. The retailer has increased lending standards at its card division, with bad debt expense falling by more than half to $138 million last quarter.

So-called same-store sales at 30 U.S. retail chains rose 3 percent in July, less than the 3.2 percent average of analyst projections, according to Retail Metrics Inc. That marked the fourth consecutive month revenue trailed estimates.

Target and Wal-Mart, the world’s largest retailer, are now competing for customers during the back-to-school season, the second-busiest time for purchases after the end-of-year holidays. Back-to-school spending may top $55 billion in the U.S. this year, the National Retail Federation said last month.

Yesterday, Bentonville, Arkansas-based Wal-Mart reported a 3.6 percent increase in second-quarter profit and boosted its earnings forecast for the year to as much as $4.05 a share. The company, led by CEO Mike Duke, has lowered prices on products like detergent and ice cream to keep consumers shopping.

Download: Earnings

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