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Target Raises Annual Forecast as Warm Weather Helps Sales

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May 16 (Bloomberg) -- Target Corp., the second-largest U.S. discount retailer, raised its full-year earnings forecast after warm weather helped drive sales in the first quarter.

Profit this year will be as much as $4.30, up from a previous forecast of a maximum of $4.25, the Minneapolis-based company said today in a statement. Analysts projected $4.26, the average of 23 estimates compiled by Bloomberg.

Target increased same-store sales 5.3 percent in the first quarter, its best performance in six years, as the warmest temperatures in North America in 50 years encouraged shopping. The company’s push into offering more food and deals through a discount card also continued to boost revenue.

Target rose 1.3 percent to $55.82 at 10:11 a.m. in New York. The shares had gained 7.5 percent this year before today.

Net income in the quarter ended April 28 rose 1.2 percent to $697 million, or $1.04 a share, from $689 million, or 99 cents, a year earlier. Analysts projected $1.01, the average of 20 estimates compiled by Bloomberg. Investments to open stores in Canada lowered profit by about 8 cents a share, Target said.

Gross margin at the company’s U.S. retail segment narrowed for the seventh straight quarter. First-quarter gross margin, the percentage of sales left after subtracting the cost of goods sold, shrank to 30.2 percent from 30.4 percent a year earlier. Analysts projected 31 percent, the average of nine estimates.

The company’s credit card unit, which had boosted earnings in the past year, became less profitable. Income at the segment declined 28 percent to $139 million from $194 million a year earlier. Bad debt expense rose more than fourfold to $52 million. The retailer suspended plans to sell the division in January and said it would start looking for potential partners later this year.

The percentage of sales being made through its REDCard discount program rose to 11.6 percent from 7.6 percent a year earlier.

(Target will hold a conference call on the results at 10:30 a.m. New York time. To listen, visit TGT US <EQUITY> EVT <GO>.)

To contact the reporters on this story: Lauren Coleman-Lochner in New York at; Matt Townsend in New York at

To contact the editor responsible for this story: Robin Ajello at

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