NEW YORK (Reuters) - Target Corp expects the pace of sales growth at established stores to double this year and predicted that entering Canada in 2013 and its branded credit card discount program could help it reach annual sales of $100 billion within seven years.
Target, which posted a 10.5 percent quarterly profit increase on the strength on holiday sales that easily bested those of Wal-Mart Stores Inc, estimated that its same-store sales would rise 4 percent to 5 percent this year.
The discount retailer said that offering U.S. shoppers 5 percent off purchases made on its private label credit cards, a program it began last year, would continue to be a boon.
It also credited the wider variety of fresh food in its general merchandise stores, which it calls PFresh, for part of the quarter’s 2.4 percent gain in same-store sales, or sales at stores open at least a year.
Shares in Target rose 4 percent in afternoon trading.
Analysts said Target’s initiatives should help it reach those goals, but cautioned the so-called “cheap chic” chain could be thwarted by the economic recovery’s fragility.
Increasing same-store sales 4 percent to 5 percent this year “will probably take a pretty good consumer spending environment, coupled with PFresh and the 5 percent rewards program continuing to work,” said Matt Arnold, an analyst with Edward Jones.
Target’s initiatives are necessary given that “the U.S. market for the kinds of goods we sell is not enjoying robust growth,” Chief Financial Officer Douglas Scovanner told investors on a call.
Target, which operates 1,750 stores in the United States, revealed last month it would open as many as 150 stores in Canada by 2014, its first international foray.
The expansion into Canada is a cornerstone of its growth plan and could contribute to doubling earnings per share to about $8 within seven years, Scovanner said.
In the fiscal year ended January 29, 2011, Target had sales of $65.8 billion and earnings per share of $4.
Scovanner estimated that expenses associated with the Canadian business would dent earnings by 15 to 20 cents per share this year, which nonetheless should be up 10 percent.
Shares were up $1.83 to $52.09 in late afternoon trading.
Target had fewer write-offs of bad credit card debt as shoppers’ finances continued to improve.
Target said its credit card business generated a profit of $151 million, nearly four times more than last year, as consumers’ improving finances helped it reduce its bad debt expense by 71 percent.
The company is trying to sell its credit card receivables and Scovanner said a deal could be reached by later this year or early next year but gave no further details.
The U.S. discount chain earned $1.04 billion, or $1.45 per share, in the fourth quarter, compared with $936 million, or $1.24 per share, a year earlier.
Excluding items, Target’s profit was $1.38, just under the $1.40 Wall Street analysts were expecting, according to Thomson Reuters I/B/E/S.
Sales rose 2.8 percent to $20.28 billion
Target said its gross margin fell 0.4 percentage point to 28.7 percent, due to the discount it offers on its private label credit cards and its fresh food expansion.
Reporting by Phil Wahba in New York. Additional reporting by Brad Dorfman and Jessica Wohl in Chicago; Editing by Lisa Von Ahn, Dave Zimmerman and Bernard Orr