Target Lifts Outlook After Beating Q1 Profit, Sales Estimates

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Rendering of Target's new smaller scale, urban-located CityTarget stores, several of which will open this summer.

Minneapolis—Target raised its full year forecast today after reporting better-than-expected first quarter profit and sales despite higher expenses from its Canadian expansion.

For the quarter ended April 28, the mass merchant posted a 1.2% increase in its net profit to $697 million, or $1.04 a share, compared with $689 million, or 99 cents a share, a year ago. Target noted that its first quarter income was offset by $55 million, or about 8 cents share, due to expenses relating to its expansion into Canada.

Total revenue increased 5.9% to $16.87 billion. Comparable store sales grew 5.3%. Gross margin narrowed to 30.2% from 30.4%, but the retail unit’s earnings before interest and tax rose 13%.

Target’s results were better than analysts’ average estimate for earnings of $1.01 a share on sales of $16.83 billion.

“We’re very pleased with our first quarter earnings, which benefited from better-than-expected sales,” said Gregg Steinhafel, chairman/president/ceo. “While our outlook for the remainder of 2012 reflects continued economic uncertainty, we are confident in our strategy, keenly focused on delivering an affordable and inspirational merchandise assortment to our guests and committed to making thoughtful investments in our U.S. and Canadian business segments that we expect will reward our shareholders over time.”

To Open Small, Urban Stores

Target benefitted from warmer weather earlier in the quarter, which increased demand for new spring merchandise and its exclusive collection with designer Jason Wu. The company also teamed with some specialty stores to offer limited edition merchandise.

The company further boosted traffic further by adding more fresh food and giving shoppers a 5% discount on its store card purchases.

“Consumers are not buying more at Target,” said Brian Sozzi, chief equities analyst at NBG Productions. “What’s driving their sales is maybe people are shopping a bit more often. It’s not like people are going in and loading up their baskets as much as they were a couple of years ago.”

The number of transactions at Target stores open a least a year rose 2%, while the number of items per transaction just edged up 0.6%.

Revenue at its credit card division fell 7.1% to $330 million as average receivables declined 6%.

Target ended the quarter with of 1,764 stores but plans to open its first CityTarget stores, smaller, urban-oriented locations this summer as well as mini Apple shops in 25 stores this year.

As for its second quarter, Target forecast earnings of 94 cents to $1.04 a share with comparable store sales rising 3%. Analysts’ estimate 99 cents a share.

For its full year, Target raised its outlook by 5 cents a share to $4.10 to $4.30 a share. Analysts’ average estimate expects $4.28 a share.


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