Target Corp. reported a 29 percent increase in first-quarter net income, fueled by an improvement in its credit-card business and higher sales of more profitable items such as clothing.
Chairman and CEO Gregg Steinhafel said the results came in a "stronger-than-expected economic environment."
The discounter, based in Minneapolis, reported net income of $671 million, or 90 cents per share, for the period ended May 1. That compares with $522 million, or 69 cents per share, in the year-ago period. Analysts surveyed by Thomson Reuters had expected 86 cents a share.
Target said its total revenue rose 5 percent to $15.59 billion, a a shade ahead of Wall Street expectations. Target's revenue at stores open at least a year rose 2.8 percent for the first quarter. The measure is a key indicator of a retailer's health because it excludes the effect of expansion.
In a statement, Steinhafel noted that the retail segment beat expectations as sales of discretionary items with high profit margins such as clothing were particularly strong. Target's gross profit margin increased to 31.3 percent in the first quarter, up from 30.8 percent in the year-ago period.
Steinhafel also noted that profitability in its credit card segment also was well above expectations.
Target's sales results were in sharp contrast with Wal-Mart, which reported on Tuesday that its key measure of revenue fell for the fourth consecutive quarter.
Wal-Mart struggled with a 1.1 percent drop in revenue at stores opened at least a year, dragged down by its U.S. namesake business. That was below the 0.6 percent decline that analysts had expected. Wal-Mart also said that its customer counts declined for the second straight quarter.
Even as the world's largest retailer reported a 10 percent increase in net income that beat analysts' expectations for the first quarter, it offered a muted outlook and offered a pessimistic view of the economy. Its main customers, it said, were having even more trouble stretching their dollars to the next payday.
Target, which carved a niche as a cheap chic discounter, took a hit when the economy went into free fall because about 40 percent of its sales come from essentials like groceries and wellness as opposed to 60 percent at Wal-Mart.
But Wal-Mart, which had benefited from a steady flow of new customers trading down from upscale stores, acknowledged Tuesday that it's possible it is losing some of the new customers it acquired during the Great Recession.
Meanwhile, its main customers are cutting back the number of trips as they either stopped shopping or are going to other alternatives like dollar stores. Many analysts believe that Target is taking some customers away from Wal-Mart.
To turn around sales, Target has emphasized its low prices in advertising and expanded its food offerings. The company also rolled out a new store format starting in April. It features spruced-up home furnishings, larger grocery sections, and better video-game displays.
Like Wal-Mart, Target also has plans to open smaller stores in urban markets. Target, which has stores only in the United States, said in January that it plans to open stores in Canada, Mexico and Latin America, but not for at least three to five years.
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