Target Earnings Beats Expectations on Stronger Sales
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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
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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.
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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.
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"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.
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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.