May 16, 2012 / 12:17 PM / in 6 years

UPDATE 4-Target raises profit forecast; shares inch up

* First-quarter EPS $1.03 vs Wall St view $1.01

* Raises FY EPS view 5 cents per share

* On track for $100 bln in sales, $8 in EPS by ‘17

* Shares fractionally higher

By Jessica Wohl

May 16 (Reuters) - Target Corp raised its annual earnings forecast after posting a bigger-than-expected rise in quarterly profit, even as it spends more on plans to open stores in Canada and has concerns about U.S. shoppers’ ability to spend.

The discount chain expects economic uncertainty to continue for the rest of 2012, Chairman and Chief Executive Gregg Steinhafel said on Wednesday.

Shares of Target were up 31 cents to $55.39 in midday trading after rising as high as $56.44 earlier in the session.

“Consumers are not buying more at Target. What’s driving their sales is maybe people are shopping a bit more often,” said Brian Sozzi, chief equities analyst at NBG Productions. “It’s not like people are going in and loading up their baskets as much as they were a couple of years ago.”

Target said it expects sales at stores open at least a year, or same-store sales, to rise about 3 percent this quarter and 3 percent or a little more for the full year. Last year same-store sales rose 3 percent.

Target, which sells basic goods such as soap and paper towels along with limited-edition items from the likes of designer Jason Wu, has been seeing more customers shop using its credit cards, which offer a 5 percent discount and free online shipping.

Some of the first-quarter strength came from an early Easter and warmer weather, which spurred sales of clothing and other items. Apparel had its best quarterly performance since 2006.

The number of transactions at Target stores open at least a year rose 2 percent in the first quarter, while the number of items per transaction rose just 0.6 percent. Selling prices were 2.6 percent higher than a year ago.

Target’s latest initiatives include opening its first CityTarget stores - smaller, urban-format stores - this summer. Along with such plans, Target is likely to benefit as J.C. Penney Co Inc works on a makeover, said Consumer Edge Research analyst Faye Landes, who has an “outperform” rating and $63 price target on Target shares.

Macy’s Inc has already said it is benefiting as J.C. Penney loses sales while it works on a new retail strategy.

Target has added a wider variety of food, including fresh produce, to more of its stores. Other chains, such as Dollar General Corp and Family Dollar Stores Inc, are also attracting shoppers with more food items.

Target earned $697 million, or $1.04 per share, in the first quarter that ended in April, up from $689 million, or 99 cents per share, a year earlier. On an adjusted basis, it said it earned $1.11 per share.

Target is preparing to enter Canada in 2013 and said costs related to its first international expansion cut about 8 cents per share from first-quarter profit. In 2011, it spent about 17 cents per share on Canada.

Excluding the Canada costs, the company earned $1.03 per share, topping analysts’ average forecast of $1.01, according to Thomson Reuters I/B/E/S.

HIGHER EXPECTATIONS

The company raised its fiscal-year profit view by 5 cents per share. It now expects adjusted earnings of $4.60 to $4.80 per share. For the second quarter, it anticipates adjusted earnings of $1.04 to $1.14 per share.

Analysts expect Target to earn $4.28 per share this year and 99 cents per share in the second quarter.

“They set the bar high, and the trends in their business, in my opinion, I don’t know if they support that,” Sozzi said.

Target’s same-store sales rose 5.3 percent in the first quarter. While it was the strongest quarterly performance in more than six years, it fell short of analysts’ average forecast of 5.6 percent growth, according to Thomson Reuters.

Target is growing faster than rival Walmart U.S., the largest unit of Wal-Mart Stores Inc. Analysts expect Walmart U.S. to post a 1.4 percent rise in same-store sales when Wal-Mart issues its quarterly results on Thursday.

Target’s overall first-quarter sales rose 6.1 percent to $16.54 billion. Total revenue, including credit-card revenue, rose 5.9 percent to $16.87 billion.

Target said 11.6 percent of sales in its stores were paid for with its REDcard credit and debit cards. A year ago, only 7.6 percent of sales were paid for with the cards.

The company is still committed to selling its credit card receivables portfolio, Steinhafel said during a conference call.

Target still expects to hit $100 billion in annual sales and $8 in annual earnings per share by 2017, Chief Financial Officer John Mulligan said. Last year, sales were $68.47 billion and earnings were $4.28 per share.

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