Pointing to a strong showing by its U.S. retail and credit card businesses, Target Corp. turned in robust earnings and sales gains for its fiscal 2011 third quarter.

Target Corp., third quarter, fiscal 2011 third quarter, earnings, sales, revenue, same-store sales, gross margin, EBIT, earnings per share, Canadian market entry, Gregg Steinhafel, credit card segment, Target's U.S. credit card segment, Mark Miller, William Blair & Co., Russell Redman

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Target sees third-quarter earnings jump

November 16th, 2011

MINNEAPOLIS – Pointing to a strong showing by its U.S. retail and credit card businesses, Target Corp. turned in robust earnings and sales gains for its fiscal 2011 third quarter.

The discount store chain said Wednesday that net income for the third quarter ended Oct. 30 climbed to $555 million, or 82 cents per share, from $535 million, or 74 cents per share, a year earlier.

That was well above the average analyst estimate of 74 cents per share for the 2011 quarter, according to Thomson Financial. Analysts' earnings per share (EPS) forecast ranged from a low of 69 cents per share to a high of 78 cents per share.

Target noted that its third-quarter 2011 EPS reflects a negative impact of 5 cents related to the company's investments in its 2013 Canadian market entry and that third-quarter 2010 EPS includes a positive impact of 6 cents from favorable state income tax settlements. Excluding those two items, adjusted EPS surged to 87 cents in third-quarter 2011 from 68 cents a year ago.

On the revenue side, Target's total sales in third-quarter 2011 rose 5.4% to $16.1 billion from $15.2 billion a year earlier. The retailer attributed the gain to a 4.3% increase in same-store sales and the contribution from new stores. Overall, Target has 1,767 stores.

Segment earnings before interest expense and income taxes (EBIT) came in at $931 million, up 14.1% from $816 million in the prior-year period.

Third-quarter 2011 gross margin was virtually flat at 30.5%, compared with 30.6% in the year-ago quarter. Target said that result reflected the impact of its integrated growth strategies, partially offset by rate improvements within categories.

In Target's U.S. credit card segment, profit for the 2011 third quarter advanced 10% to $143 million from $130 million a year ago. The company said average receivables fell 9.9% to $6.2 billion and average receivables directly funded by Target declined 14% to $2.4 billion. Also, bad debt expenses dropped to $40 million from $110 million a year earlier, which the retailer attributed to improved trends in key measures of risk. 

"We're very pleased with our third-quarter financial results, which reflect strong performance in our U.S. retail and U.S. credit card segments," Target chairman and chief executive officer Gregg Steinhafel said in a statement. "We're confident that we have the right strategy and team in place to drive continued strong performance this holiday season and well into the future."

According to analyst Mark Miller of William Blair & Co., Target's gross margin result, in particular, provided an "encouraging contrast" to Walmart, which reported third-quarter results on Tuesday.

"Target's third‐quarter earnings demonstrated that the improved comp‐store sales trend in the period did not come at the expense of gross margins, as was the case with Wal‐Mart," Miller wrote in a research note on Target's third quarter. "The company also delivered solid leverage of expenses with the improved sales. Importantly, all the earnings upside in the quarter was attributable to the retail operations, as credit was in line with expectations."

Looking ahead, Target expects 2011 fourth-quarter earnings at $1.43 to $1.53 per diluted share on a GAAP basis. According to Thomson Financial, the average analyst estimate for the quarter is earnings of $1.48 per share, with projections ranging from a low of $1.36 to a high of $1.55.