Target's 2Q Profits Up 3.7 Percent

NEW YORK (AP) -- Target Corp. is benefiting from the economic downturn, while other retailers are getting battered by it.

The discounter, based in Minneapolis, on Wednesday posted second-quarter profit and revenue that beat Wall Street estimates in part because of a growing frugal trend among Americans who are concerned with job security and other economic woes. Target said that while cost-conscious customers in general are making fewer shopping trips to save money on gas, they're increasingly coming into its stores for their one-stop shopping needs.

"We do believe that we are gaining some of the trip consolidation," said Kathy Tesija, Target's executive vice president of merchandising. "We think we're benefiting across all income levels."

Consumers have been changing their shopping habits during the economic downturn as they're being squeezed by rising food costs, high unemployment and weak job and housing markets. Retailers have had to adapt by keeping inventory fresh, offering incentives and discounting.

Target said its results were buoyed by its push into the grocery business, which allows it to offer customers more food items. The retailer also said it benefited from the 5 percent discount program it launched in October for customers who pay with Target branded credit and debit cards.

Target said profit rose 3.7 percent to $704 million, or $1.03 per share, for the quarter that ended July 30. That compares with $679 million, or 92 cents per share, a year earlier. Revenue rose 4.6 percent to $16.24 billion. Analysts were expecting earnings of 97 cents per share on revenue of $15.9 billion.

Revenue rose 3.9 percent at stores opened at least a year ---- a key indicator of a retailer's health. Target said shoppers bought more clothing and home furnishings, as well as groceries and beauty products. Some shoppers also traded up to higher-end home brands like Fieldcrest.

Looking forward, Target said August sales growth is so far slightly slower than in June and July. But the company said school supplies have been selling well and the heart of the back-to-school selling season is still ahead.

The company forecasts third-quarter profit of 70 cents to 75 cents per share, while analysts expect 72 cents per share. For the full year, Target expects to earn $4.15 per share to $4.30 per share, compared with the $4.14 per share analysts expect.

"Without a doubt, recent economic and financial market turmoil create additional uncertainty about what lies ahead," said CEO Gregg Steinhafel, who expressed caution in speaking to investors during a conference call on Wednesday. "Our teams are vigilant and prepared to address unexpected challenges and opportunities as they arise."

Target shares rose $1.31, nearly 3 percent, to $50.68. That's at the mid-point of its 52-week range of $45.28 and $60.97.

Analysts say Target is winning customers from rival Wal-Mart Stores Inc., the world's largest retailer. Target's results come a day after Wal-Mart posted its ninth straight quarter of declines in revenue at U.S. Walmart stores open at least a year.

The Bentonville, Ark.-based company, however, reported a 5.7 percent increase in second-quarter profit and raised its outlook for the year, citing strong international sales growth and cost cutting. And al-Mart said it has seen a steady improvement in its U.S. business in the past three quarters.

During a pre-recorded call on Tuesday, Mike Duke, Wal-Mart's chief executive officer, said his company's shoppers are being pinched by the economy and "trading down to stretch their budgets."

But some analysts say customers are trading to Target because they were turned off when Wal-Mart got rid of popular brands and items in an effort to clean up its stores. Moreover, recent surveys, including one from WSL Strategic Retail, show that customers no longer believe that Wal-Mart is the low-price leader.

Wal-Mart has been working to restock shelves with popular items again. It's also returning to an everyday low-price strategy instead of discounting select merchandise on a temporary basis. But some analysts say it's too little too late for some shoppers.

"Wal-Mart is getting its lunch eaten," by Target, said Patty Edwards, a principal at Trutina Financial, an investment management firm. "Wal-Mart's flip-flopping is confusing shoppers."

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