Target Q2 Profits Rise on Sales Increase

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Minneapolis—Reporting that back to school sales have picked up—along with an increase in more affluent shoppers–Target Corp. posted today a 3.7% increase in its second quarter profit.

For the quarter ended July 30, Target reported a profit of $704 million, or $1.03 a share, up from $679 million, or 92 cents, a year earlier. Recently Target’s earnings have increases as problems with its financial services arm, such as its credit card division, have improved.

Average receivables at the company’s credit-card segment decreased 12% to $6.22 billion from $7.1 billion in 2010 and bad-debt expenses dropped to $15 million from $138 million a year earlier. Segment revenue fell 15% and profit increased 15%.

Total second quarter revenue increased 4.6% to $16.24 billion while comparable store sales rose 3.9%.

Higher Income Consumers Shopping More, Spending More

Analysts’ average estimates expected earnings of 97 cents a share on sales of $16.17 billion.

Results “benefited from an acceleration in the pace of our comparable-store sales growth,” Gregg Steinhafel, ceo, said. “We continue to focus on strong execution of our strategy, preparing Target to perform well in a variety of economic environments.”

In a conference call with analysts, Steinhafel said comparable store sales “across the country in every region experienced healthy growth … the strongest in four years.”

Target executive said their strategy of remodeling stores, adding fresh groceries, as well as offering 5% off on purchases uses its credits cards, has helped improve the nation’s second largest retailer’s situation.

In addition to the 180 store remodels completed so far this year, another 140 should be completed by the end of the third quarter. Target is also heading into Canada with its first store opening planned for 2013

Retail gross margin fell to 31.6% from 32%, with the company citing impact from its growth efforts and ability to offset cost inflation by “disciplined purchasing.”

The store’s “masstige” image, which includes capsule collections with higher end designers such as Zac Posen and Mulberry, may be accounting for higher income shoppers in its stores, too.

Kathryn Tesija, executive vice president of merchandising, told analysts that higher-income consumers are shopping more often and spending more, while 80% of consumers with “more modest income levels” have reduced the number of trips they make to Target.

Sales of apparel, home goods, seasonal and back-to-school sales, as well as hard goods, all grew, the company said.