Target Reports In-Line Despite Lower Sales

Zacks.com submits:
Target Corporation (TGT) recently posted second-quarter 2010 quarterly earnings of 92 cents per share, in line with the Zacks Consensus Estimate and up 17% from 79 cents last year. The increase in quarterly earnings was driven by effective cost management and improved profitability at retail and credit card segments, which overshadowed lower-than-expected sales. Total revenue for the quarter rose 3.1% year over year to $15,532 million but fell short of the Zacks Consensus Estimate of $15,597 million. Retail sales grew 3.8% to $15,126 million as shoppers are gradually opening up their wallets. Apparel remains one of the strongest categories. Comparable-store sales for the quarter grew 1.7%, a substantial improvement over a decline of 6.2% in the prior-year quarter. The number of transactions rose to 2.4%, whereas the average transaction amount dropped marginally by 0.8% in the quarter. Despite a 3.8% increase in cost of sales, gross profit at the Retail segment climbed 3.9% to $4,833 million, aided by sales growth across the segment, whereas gross margin increased slightly by 10 basis points to 32%. Segment operating income jumped 3.1% to $1,096 million; however, operating margin contracted 10 basis points to 7.2%. Target’s efficient marketing, multi-channel strategy, product innovation, compelling pricing strategy, and new merchandise assortments should help drive comparable-store sales and operating margins in the long term. We expect the company to gain market share, and believe that more focus on consumable items should boost sales and earnings in a sluggish consumer environment. The company said that revenue from the Credit Card segment tumbled 18.8% to $406 million. However, Target was quick to indicate that segment profit rose to $149 million from $63 million in the prior-year quarter, helped by a 54.5% decline in bad debt expenses. During the quarter, Target repurchased about 17.5 million shares at a price of $51.72 per share, aggregating $907 million, under the share repurchase program authorized in November 2007. Target, which competes with Wal-Mart Stores Inc. (WMT), currently operates 1,743 stores in 49 states, of which 1,492 are Target general merchandise stores and 251 are SuperTarget Stores. The company ended the quarter with cash and cash equivalents of $1,540 million, total unsecured debt and other borrowings of $12,475 million and shareholders’ equity of $15,268 million.Complete Story »