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Target profit rises, but outlook tempered

More customers, but they’re careful with their dollars

A Target employee made his way through the new store in Harlem yesterday. Target Corp.’s quarterly earnings rose 14 percent, as improved business in its credit card division and strong demand for its clothing lines helped overcome disappointing sales. . A Target employee made his way through the new store in Harlem yesterday. Target Corp.’s quarterly earnings rose 14 percent, as improved business in its credit card division and strong demand for its clothing lines helped overcome disappointing sales. . (Chris Hondros/Getty Images)
By Anne D’Innocenzio
Associated Press / August 19, 2010

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NEW YORK — Target Corp. is counting on driving customers into its stores in the coming months with two weapons: a 5 percent discount for its store credit-card holders and an emphasis on food.

Even with those, the company offered a conservative sales outlook as a slowing economy weighs down its expectations.

The cautious view comes as Target reported a 14.3 percent increase in net income, as improved business in its credit card division, cost-cutting, and strong demand for its stylish fashions, which carry fat profit margins, overcame disappointing sales.

The discounter drove more customers into its stores, but they spent less on each trip amid job worries. The company said its earnings the rest of the year should be in line with Wall Street forecasts, lifting its shares $1.27, or 2.5 percent, to $51.95.

“As we consider the economy and the pattern of our sales, it’s clear that the second quarter marked a change in recent trends,’’ Gregg Steinhafel, chairman and CEO, said during a conference call with investors yesterday.

“While no one has a clear view of the future, recent results in both our business and the economy reinforce our perspective that the current recovery will be slow and inconsistent.’’

Steinhafel said that, even so, Target is in a strong position to continue to take business from rivals.

Target’s results are in contrast with archrival Wal-Mart Stores Inc., which has reported five straight quarterly declines for a key measure of revenue and continues to struggle to keep customers.

Brian Sozzi, an analyst with Wall Street Strategies, said Wal-Mart remains the price leader. But the company has stumbled in part because of errors, particularly the elimination of hundreds of grocery items from store shelves as part of a campaign to declutter aisles. Wal-Mart is scrambling to restock those items after losing some customers to Target.

Moreover, Wal-Mart’s low-income customers have been hurt the most by the economic woes. Wal-Mart said Tuesday that customers continue to have a hard time stretching their dollars to the next payday, and food-stamp use continues to rise.

But Target has seen sales increases taper off since April after enjoying a surprise uptick earlier in the year.

Target’s net income was $679 million, or 92 cents per share, in the period ended July 31. That compares with $594 million, or 79 cents per share, a year earlier.

But revenue came in below expectations at $15.53 billion, up 3.1 percent. Revenue at stores open at least a year rose 1.7 percent. Analysts surveyed by Thomson Reuters expected 92 cents per share on revenue of $15.62 billion.

Target’s credit card segment enjoyed “very strong results’’ amid a sharp reduction in bad-debt expense compared with last year.

“Consumers remain cautious about the future and very thoughtful about how they spend their money,’’ said Kathee Tesija, Target’s executive vice president of marketing.