Target Corp., the US market's second largest retailer, endured an uncertain economy in the latest quarter to earn a solid profit which beat Wall Street expectations.
The retail sector, vulnerable to the whims of the economic and political environment has faced various obstacles in recent months. The ongoing war in Lebanon along with other Middle East stresses, BPâ€™s gas field shutdown and perhaps even less jet fuel demand due to Britainâ€™s latest airline terrorism scare have pushed up oil prices. Domestically, the U.S. Federal reserve has just paused from raising interest rates, noting that the economy has slowed down.
Targetâ€™s chief executive Bob Ulrich in a conference call with analysts on Thursday expressed concern.
â€œCertainly we recognize that the current environment presents a number of real challenges which may adversely affect consumer spending, including higher energy costs, rising interest rates and a weaker housing market,â€ Ulrich said.
Targetâ€™s earnings for the second quarter were solid. The Minneapolis-based firm posted a 13 percent increase in net profits to reach $609 million. Total revenue grew 11.3 percent to $13.3 billion. This was driven by new store expansion and an increase in its credit card revenue. Investorsâ€™ expectations were exceeded as the company posted an earnings per share of 70 cents, versus 69 cents expected by analysts.
Meanwhile, in comparable store sales, the firm posted a growth rate of 4.6 percent for the quarter. The figure represents the increase in sales at stores that have been open for more than a year, excluding stores that closed during the quarter.
In a testament to the companyâ€™s performance over its closest competitor over the past 13 quarters, Target has beaten Wal-Mart in sales for 10 of those. The company, however warned investors of future difficulties it could face, noting that the company would face a â€œchallenging environment.â€
A gauge of what U.S. consumers could be feeling came from the July 2006 Index of Consumer Sentiment, which noted that rises in energy costs were a contributing factor. According to the latest figures, the index was down to 84.7 percent, well below the 96.5 points recorded a year ago.
â€œCurrent economic conditions were judged slightly less favorably, largely due to the impact of gas prices,â€ stated Richard T. Curtin, director of the University of Michiganâ€™s survey of consumers, which published the index.
The company is attempting to overcome some of the price difficulties by moving up in the market, carrying more expensive, trendier products.
Ulrich felt confident that the companyâ€™s growth would be ongoing.
â€œWe continue to believe Target will deliver strong sales and profit performance in 2006 and generate another year of profitable market share growth even in light of the challenges posed by the current economic environment,â€ Ulrich said.