Target's 3Q Profit Rises 22.6 Percent
NEW YORK (AP) -- Target Corp. is projecting a merry holiday as the discounter counts on a 5 percent discount for its credit and debit card customers as well as revamping of hundreds of stores to draw in shoppers.
The upbeat report comes as Target reported a 22.6 percent increase in third-quarter net income, helped by improvements in its credit card business and expansion into food.
The cheap chic discounter said it expects a key revenue measure to rise more sharply than it has in any period in the last three years as it reaps the benefits of its new 5 percent discount offer for those buying with its branded credit card or debit cards. That means the measure has to exceed 2.8 percent, achieved in the first quarter. Target also announced expects the holiday quarter's profits to match Wall Street estimates.
Shares rose almost 4 percent, or $2.04 per share, to $55.58 in morning trading.
"While consumers remain conservative in their purchasing behavior, we're encouraged by recent signs in the broader economy that may signal somewhat stronger and more stable sales in the coming months," said Gregg Steinhafel, chairman, president and CEO of Target Corp. in address to investors on Wednesday. "While some current signals are more positive, we continue to plan our business cautiously."
Target posted net income of $535 million, or 74 cents per share, in the quarter ended Oct. 30. That compares with $436 million, or 58 cents per share in the year-ago period.
Revenue rose 2.2 percent to $15.61 billion.
Analysts surveyed by Thomson Reuters forecast earnings of 68 cents per share on revenue of $15.61 billion.
Within its credit card segment, profit increased to $130 million from $60 million a year ago, as bad debt expense declined 64 percent to $110 million from $301 million in same period last year.
At Target's retail segment, revenue increased 3 percent to $15.2 billion, partly because of a 1.6 percent increase in revenue at stores open at least a year. The measure is considered a key indicator of a retailer's health because it excludes the effects of stores that open or close during the year.
Steinhafel said that so far its 5 percent discount offer, launched Oct. 17, "being enthusiastically embraced." Chief Financial Officer Doug Scovanner told investors that revenue at stores opened at least a year have risen in the midsingle digits for the first two weeks of the month. For the holiday quarter, he expects the measure to be up anywhere from 2 percent to 4 percent.
The discounter is also counting on benefits from revamping its stores across all areas, from improved electronics displays to better lighting in its cosmetics area. The big draw, however, is an expanded section for fresh food at its general merchandise stores.
Target officials noted that shoppers are continuing to open their wallets to buy some discretionary items like clothing, though home furnishings still aren't selling well. Deep discounting on TVs amid a glut has helped fuel sales for the quarter, they said.
That translated to the average customer's total purchase shrinking 0.5 percent, but more customers came into its stores, fueling a 2.1 percent increase in transactions. Selling price per item fell 3.3 percent.
Target said that meeting Wall Street's fourth-quarter earnings estimate of $1.38 per share is reasonable.
Target's results came a day after rival Wal-Mart Stores Inc. reported a 9.3 percent increase in third-quarter net income as the world's largest retailer benefited from cost controls and a robust international business. Wal-Mart also raised its full-year profit outlook.
Wal-Mart's improvements came despite weakness at its U.S. business. Total revenue at U.S. Walmart stores fell as fewer customers visited and spent less when they did. Revenue at stores open at least a year also fell for the sixth quarter in a row.
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