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Higher-income consumers deliver solid quarter for Target

Target Corp. reported today a stronger-than-expected second quarter and upped its outlook for the rest of the year.

Target Corp. (NYSE:TGT) reported today a stronger-than-expected second quarter and upped its outlook for the rest of the year.

The news delivered a positive boost to the market in early trading and a hopeful signal to the economy as more affluent consumers loosen their wallets.

Target’s results stood in contrast to rival Wal-Mart Stores Inc. (NYSE: WMT), which reported Tuesday that U.S. same-store sales declined 1.4 percent for the quarter and are down 1.2 percent year to date, excluding fuel.

Same-store sales for Target grew 3.9 percent in the quarter and 2.9 percent year to date.

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Other retailers also have delivered mixed second-quarter sales results:

• Home Depot Inc. (NYSE: HD), up 3.5 percent.

• Costco Wholesale Corp. (NASDAQ: COST), up 5 percent in July, excluding gasoline sales.

• Lowe’s Cos. (NYSE: LOW), down 0.3 percent.

“We’re very pleased with our financial results, which benefited from acceleration in the pace of our comparable-store sales growth,” said Gregg Steinhafel, Target chairman, president, and chief executive officer, in a prepared release. “We continue to focus on strong execution of our strategy, preparing Target to perform well in a variety of economic environments.”

In its first retail venture outside the United States, Target is planning to enter the Canadian market in 2013. Start-up expenses and depreciation related to the venture cost the company 5 cents per share in earnings, Target reported.

In a conference call with investors and analysts this morning, Steinhafel said same-store sales “across the country in every region experienced healthy growth … the strongest in four years.” Target also completed 180 store-remodeling projects with an additional 140 scheduled by the end of Q3, he said.

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

She said apparel, home goods, seasonal and back-to-school sales, as well as hard goods, all grew. Tesija also noted “quite strong” tablet computer sales and said Target is “starting to see stability” in more volatile television sales.

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Target’s gross profit margins dipped by 0.4 of a point to 31.6 percent from a year ago, but company officials expressed satisfaction that they were able to offset cost inflation by disciplined purchasing. Tesija said she expects inflation will peak in Q3 and begin to moderate in Q4.

Target’s sales increased 5.1 percent in the second quarter to $15.9 billion from $15.1 billion in 2010, with net earnings of $704 million for the quarter, That compares with $679 million a year ago.