Target’s 4Q profit rises 53.7 percent; tight inventory controls, stronger holiday sales help

Target’s 4Q profit rises 53.7 percent

NEW YORK — Lean inventory and stronger-than-expected holiday sales helped Target Corp.’s fourth-quarter profit soar 53.7 percent.

Target said it expects to pick up more market share this year as it rolls out a new store format that includes a bigger grocery section. But it offered a cautious profit outlook during its call with investors following the release.

Shares slipped 48 cents to $50.16 in afternoon trading.

The nation’s second-largest discounter said Tuesday it earned $936 million, or $1.24 per share, in the quarter ended Jan. 30.

Revenue rose 3.2 percent to $20.18 billion. Sales at stores open at least a year rose 0.6 percent. In comparison, chief rival Wal-Mart Stores Inc. saw its total sales at its U.S. Walmart stores fall for the first time, as price-cutting competitors lure away bargain-hunters. Walmart also suffered a 1.6 percent decline in sales at stores open at least a year, its third consecutive quarterly decline.

That figure is a key indicator of retailer performance because it measures growth at existing stores rather than newly opened ones.

Target’s results beat estimates of analysts surveyed by Thomson Reuters, who expected $1.16 per share on revenue of $20.15 billion.

In a statement, Gregg Steinhafel, Target’s chairman, president and CEO, said he expects the company will be able to take market share and see increases in sales of discretionary items as it benefits from new merchandising initiatives as well as a continued “modest” economic recovery.

Target didn’t offer an outlook for 2010. Shares fell 54 cents to $50.10 in morning trading.

Target, which carved a niche as a cheap chic discounter, took a hit when the economy went into free fall because about 40 percent of its sales come from essentials like groceries and wellness as opposed to 60 percent at Wal-Mart Stores Inc., the world’s largest retailer.

But Wal-Mart, which had benefited from a steady flow of new customers trading down from upscale stores, faced tough price competition at the bottom such as Family Dollar Stores Inc. and from the top from rivals like Macy’s Inc.

To turn around sales, Target has emphasized its low prices in advertising and expanded its food offerings. The company is also rolling out a new store format starting in April. It will feature spruced up home furnishings offerings, larger grocery sections, and feature better video game displays.

Like Wal-Mart, Target also has plans to open smaller stores in urban markets.

Target said Tuesday that its gross profit margin increased 1.8 percentage points to 29.1 percent, fueled in part by lower levels of clearance sales, which declined more than 20 percent from the fourth quarter of 2008.

Target told investors that achieving Wall Street’s projections of 76 cents per share in the first call could be above the company’s “middle of the road” outlook. Target said generating the expected $3.62 per share for the year is “within a potential range of achievability.” Analysts surveyed by Thomson Reuters expect $3.64 per share for the year.