Tags: US | Earns | Target

Target's Profit Rises 14 Percent Despite Weak Revenue

Wednesday, 18 Aug 2010 07:52 AM

Target Corp.'s second-quarter net income rose 14.3 percent, helped by cost-cutting that offset weaker-than-expected revenue.

The discounter, based in Minneapolis, said Wednesday its 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, in the same period last year.

Revenue reached $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. The revenue shortfall gave investors pause, and shares slipped 2.6 percent to $49.35 in premarket trading Wednesday.

"Our retail segment generated strong profitability, overcoming softer-than-expected sales," Gregg Steinhafel, Target's chairman, president and CEO, said in a statement. He added that its credit card segment enjoyed "very strong results" amid a sharp reduction in bad-debt expense compared with last year.

He added, "Regardless of the pace of recovery, we are well-positioned to continue to gain profitable market share."

Like most retailers, Target has seen sales gains taper off since April as the economic recovery stalled.

Target plans to drive business into it stores this fall with a 5 percent discount for customers who pay with Target credit cards. It also hopes to draw customers in by emphasizing food at its general merchandise stores, a strategy that appears to be working so far.

Higher food sales and increased customer traffic helped its July revenue in stores open at least a year rise 2 percent, Target said earlier this month. Analysts surveyed by Thomson Reuters expected a 2.3 percent increase. The strong sales were tempered by weak sales of electronics, video games, music and movies.

The company said Wednesday that for the full quarter, the average Target customer's total purchase shrank 0.8 percent, but more customers came into stores, fueling a 2.4 percent increase in transactions. Selling price per item sold was down 2.7 percent.

Target took a hit when the economy soured because only about 40 percent of its sales came from essentials like groceries and health and beauty items. At its top competitor, Wal-Mart Stores Inc., about 60 percent did.

But Target's renewed emphasis on low prices and its shift toward food have helped it weather the uncertain economy and outperform Wal-Mart, which on Tuesday reported its fifth straight quarterly decline in revenue at stores open at least a year.

In the early days of the Great Recession, Wal-Mart benefited from a steady flow of new customers trading down from upscale stores, but it's losing some of them as they trade back up. Many analysts believe Target is taking some of them away.

With revenue of about $65 billion in its latest fiscal year, Target is less than one-quarter of the size of Wal-Mart, which generated more than $400 billion.

What's also helped Target is that its customers typically have higher household income than Wal-Mart's shoppers. In May, Target executives had said that while many of its customers still felt the direct impact of job loss or other financial stress, a much larger portion weren't especially hurt by the recession.

That larger group had become cautious about spending out of wariness rather than necessity, but earlier in the year, they became more confident and started to indulge themselves in small ways.

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Target Corp.'s second-quarter net income rose 14.3 percent, helped by cost-cutting that offset weaker-than-expected revenue. The discounter, based in Minneapolis, said Wednesday its net income was $679 million, or 92 cents per share, in the period ended July 31. That...
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2010-52-18
Wednesday, 18 Aug 2010 07:52 AM
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