Target Q2 Profit Flat on Expansion Costs

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New CityTarget store in Seattle

Minneapolis—Although Target reported today higher second quarter sales as shopping traffic increased, the company’s profit was flat as costs increased ahead of its Canadian expansion.

For the quarter ended July 30, Target posted net earnings of $704 million, or $1.06 a share, compared to $704 million, or $1.03 per share, in the same quarter last year. Excluding costs related to its Canadian expansion, earnings were $1.12 a share.

Total sales rose 3.5% to $16.4 million with comparable store sales up 3.1%. The retailer said the percentage of sales paid for with its REDcard credit and debit cards, which carry a 5% discount, rose to 12.8% from 8.7% a year earlier.

Despite the flat earnings, Target still beat analysts’ average estimate for $1.01 in earnings and for $16.82 billion in sales.

Initial Success: CityTarget Stores

“We’re pleased with Target’s strong second quarter financial performance, which reflects a continued focus on delivering an outstanding experience for our guests and disciplined execution of our strategy,” said Target CEO Gregg Steinhafel. “In addition, we’re very pleased with the initial response to the July opening of our first three CityTarget locations in Seattle, Los Angeles and Chicago. We look forward to serving guests in these dense urban areas with an exciting store format and uniquely-tailored assortment.”

The CityTarget stores are about two-thirds the size of typical Target locations with a limited selections of some merchandise. Retail analysts said the CityTarget stores could be a model for Target’s roll out in Canada where its locations will be smaller, too.

Retail analysts see CityTarget as a blueprint for how Target plans to run stores in Canada, where its sites are smaller than its typical U.S. shops. Target plans to start opening Canadian stores in March or April, after taking over leases for Zellers stores from Hudson’s Bay Co. in 2011.

Target begins its first international expansion into Canada next year and soon will open the first of 125 to 135 stores at store locations once owned by Zellners.

Looking ahead, Target forecast third quarter earnings at 69 to 79 cents a share. Analysts’ consensus expects 76 cents.

For its full fiscal year, Target now expects to earn $4.20 to $4.40 a share, up from its May forecast of $4.10 to $4.30. Analysts’ average estimate expects $4.31 a share.



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