August 18, 2010 7:01 PM EDT
US discount retail store chain Target Corp. (NYSE.TGT) announced its second quarter financial results, in line with Street estimates, and said it expects to "gain profitable market share," sending its shares surging.
Target said, Wednesday, profit rose 14.3 percent to $679 million or $0.92 per share from $594 million or $0.79 per share in the year ago period.
Sales also increased 3.8 percent to $15.13 billion from $14.6 billion in the year ago period. Total sales, including revenue from the company's credit card business, rose 3.1 percent to $15.53 billion.
Market analysts, on average, had expected the retailer to report profit of $0.92 per share on sales of $15.62 billion.
Target said its topline grew on account of 1.7 percent increase in comparable or same-store (stores open for at least a year) sales and contribution from new stores as well. However, the retailer had expected same-store sales to increase by at least 2-4 percent.
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The retailer's credit card segment also did well grossing $406 million. "Our credit card segment also enjoyed very strong results, as disciplined underwriting, superb execution and improving risk trends caused a sharp reduction in bad debt expense compared with last year," Target CEO Gregg Steinhafel said.
Gross margin rate grew to 32 percent, from 31.9 percent on the back of strong sales of higher-margin discretionary items.
Higher food sales and increased footfalls also helped offset weak sales of electronics, video games, music and movies.
On the expense side, SG&A (selling, general and administrative expenses) gained marginally from 21.4 percent in the year ago quarter to 21.5 percent in the most recent quarter, indicating that Target has managed to keep a tight rein on its expenses.
"Our retail segment generated strong profitability, overcoming softer-than-expected sales," Steinhafel said. "Growth in guest traffic and apparel sales remained robust, and teams across the company continued to exercise thoughtful control of expenses."
Looking ahead, the retailer said it expects to "gain profitable market share" regardless of the "pace of (economic) recovery." Target, like other retailers, is looking forward to back-to-school season when spending is expected to top $55 billion in the US this year.
The company said it expects same-store sales to rise anywhere between 1 percent and 3 percent in the current (third) quarter and "likely a little faster" in the fourth quarter. The retailer also said it was also comfortable with analysts' estimates for $0.68 per share in the third quarter and $1.38 per share in the fourth quarter.
Yesterday, Target's bigger rival Wal-Mart reported second quarter profit that topped Street estimates despite witnessing a decline in US same-store sales. Target is less than a quarter of Wal-Mart in terms of market value and scale of operation but has customers who typically have higher household income than Wal-Mart's shoppers.
At 2.38PM (EDT), shares of Target were trading up 2.76 percent at $52.08.
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