NEW YORK – Target Corp. (TGT), the No. 2 U.S. discount retailer, Thursday posted a higher quarterly profit as expected on stronger sales and gains from the sale of its Mervyn's (search) department store chain.
Earnings for the discounter, who has carved itself a niche in "cheap chic," rose to $537 million, or 60 cents per share, in the third quarter that ended Oct. 30, compared to $302 million, or 33 cents per share, a year earlier.
This was in line with analysts' forecasts after stripping out a $203 million, or 23 cents a t
ment over store lease accounting.
Analysts on average expected Minneapolis-based Target to post earnings of 38 cents a share, according to Reuters Estimates, and the company had backed analysts' forecasts.
"It was a good number. Margins were very solid. Inventories were in line," analyst Bill Dreher from Deutsche Bank said.
For the quarter, revenue rose 11 percent to $10.9 billion from $9.8 billion a year earlier, driven by a 4.5 percent increase in sales at stores open at least a year -- a key retail measure known as same-store sales.
Target has already said it expects same-store sales in November to rise between 2 percent and 4 percent, but gave no earnings guidance in its quarterly release.
It said its gross margin rate, a widely used measure of profitability, improved during the third quarter due mainly to improvements in markups, with the cost of sales rising 10.2 percent against revenue gain of 11 percent.
"The company is managing its mix and level of direct imports to achieve better margins and generate continued strong growth," said analyst Mark Miller from William Blair & Co. Ltd. "The company is on track to exceed street expectations for growth for 2005."
Target's stock has risen more than 32 percent so far this year, closing at $50.88 on Wednesday, outperforming the S&P Multiline Retail Industry Index (search) by nearly 13 percent and the S&P 500 Index by nearly 27 percent.
The nation's second-biggest retailer behind industry titan Wal-Mart Stores Inc. (WMT), has successfully lured more affluent customers than usually shop at cut-price stores due to its reputation for "cheap chic" -- selling style at low prices.
Target, which has about 1,313 stores in 48 states, has this year trimmed back to concentrate on its more profitable namesake stores, known for the red bull's-eye logo.
In July, Target struck a deal to sell its Mervyn's retail subsidiary, with 257 stores and four distribution centers, to an investment group and its credit card receivables for a total of about $1.65 billion.
Earlier this year Target also sold its 62-store Marshall Field's (search) chain along with nine Mervyn's stores to May Department Stores Co. (MAY) for $3.24 billion so it could focus on its more profitable namesake discount stores.