Mid-tier department store operator Kohl's Corp expects more sales gains this year, while discount retailer Target Corp said fewer shoppers are defaulting on their credit card debt -- signs that consumers' finances are getting better, slowly.

Kohl's, which caters to price-conscious shoppers, had strong sales over the holidays and said sales at its established stores could rise as much as 4 percent this year.

Target outperformed its larger but more down-market rival Wal-Mart Stores Inc during the holiday quarter and forecast comparable sales may rise up to 5 percent this year.

But both chains warned investors that the economy is still fragile and it would take little for shoppers to pull back.

The U.S. market for the kinds of goods we sell is not enjoying robust growth, Target Chief Financial Officer Douglas Scovanner said on a conference call. The wild card is what happens to the U.S. economy.

Kohl's Chief Executive Kevin Mansell warned Wall Street that chains have to fight for market share because consumer spending is not robust enough to lift everyone.

Quarterly sales fell 4.5 percent at Sears Holdings Corp's namesake chain and the company reported a lower quarterly profit.

Yet, same-store sales at Sears' Kmart chain rose 2.5 percent, reflecting how budget-conscious some U.S. shoppers remain. (For a graphic comparing Sears with its peers, click http://r.reuters.com/muz28r)

Heinz Co Chief Executive Officer William Johnson said on Thursday at the Consumer Analyst Group of New York meeting in Boca Raton, Florida, that confidence still varies widely by income level.

Upstreamers, or consumers with annual income of more than $70,000 a year, have increased spending on groceries 4 percent since the start of the recession, Johnson said, while spending by mainstreamers is down 2 percent.

Shares of Kohl's, which declared its first dividend, rose 1.7 percent in afternoon trading, while Target was up 3.0 percent. Sears fell 4.9 percent. The broader Standard & Poor's Retail Index was up 0.2 percent.

FEWER CREDIT CARD DELINQUENCIES

A major threat to retailers emerging on top of higher cotton and leather costs is the rise in gasoline prices, with oil hitting 2-1/2 year highs.

Our target is a middle-income consumer, and higher fuel prices at the pump -- that impacts them, that's less money in their picket for things that are more discretionary, which is pretty much everything we sell, Kohl's Mansell told Reuters.

Ken Perkins, president of consulting firm Retail Metrics, said department store chains Kohl's and its rival J.C. Penney Co Inc, as well as Wal-Mart and Target, are especially vulnerable.

As gas prices rise, the dollar stores tend to draw a little bit more traffic, Perkins said.

More encouragingly for retailers, with unemployment edging down, shoppers have grown better able to manage their credit card bills.

Target said earnings from its credit business nearly quadrupled from a year earlier as consumers' improving finances helped reduce the company's bad debt expense by 71 percent.

Kohl's credit business took fewer write-offs for bad debts but earned much less from late fees. Last week Nordstrom Inc also reported fewer delinquencies on credit card sales.

Some of the most upbeat sales forecasts for the year have come from upscale retailers like Saks Inc and Nordstrom as high-income earners have resumed spending.

But those chains are planning to focus their expansion on their lower-price outlets chains, Off Fifth and Rack respectively. While shoppers still want designer brands, they also want them at a discount, reflecting limited growth potential for luxury items.

(Reporting by Phil Wahba; additional reporting by Dhanya Skariachan in New York and Martinne Geller in Boca Raton; Editing by Lisa Von Ahn and Gerald E. McCormick)

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