Target Shares Rise on Solid Beat (TGT, WMT)

Target Corp. (NYSE: TGT) reported second-quarter earnings per share (EPS) of $1.12 and $16.78 billion in revenues before markets opened this morning. In the same period a year ago, the big-box retailer reported EPS of $1.03 on revenue of $16.24 billion. Second-quarter results compare to the Thomson Reuters consensus estimates for EPS of $1.01 and $16.75 billion in revenue.

The company’s chairman and CEO said:

We’re pleased with Target’s strong second quarter financial performance, which reflects a continued focus on delivering an outstanding experience for our guests and disciplined execution of our strategy.

Part of that strategy was the introduction of the company’s first three CityTarget stores. Like competitor Wal-Mart Stores Inc. (NYSE: WMT), Target is testing out smaller stores in more densely populated areas as a potential growth strategy in the United States. Walmart reports earnings tomorrow and is expected to post EPS of $1.17 on revenues of $115.7 billion.

Same-store sales rose 3.1% compared with the same period a year ago, and the U.S. retail division’s sales rose 3.5%. U.S. retail gross margins were off a little, from 31.6% a year ago to 31.3% this year.

The company’s credit division, once a contributor to sales and profits, posted just $328 million revenues during the quarter, down 5.1% compared with a year ago, and its profit fell from $171 million to $140 million. Target’s REDcards now account for payment in 12.8% of store sales, up from 8.7% in the same period a year ago. But the return on invested capital in the credit card group fell by more than half, from 28.5% a year ago to 12.7% this year.

Target forecast adjusted EPS of $0.83 to $0.93 for the company’s third quarter and raised its full-year EPS guidance to $4.65 to $4.85. The current consensus estimate for third quarter EPS is $0.76 and the full-year estimate is $4.31.

Target’s shares are trading about 1.3% higher in the premarket this morning at $64.20. The current 52-week range is $47.25 to $63.47. The stock’s 52-week high was set yesterday, and a new high will be posted today if the current share price holds. Thomson Reuters had a consensus analyst price target of $65.14 before today’s results were announced.

Paul Ausick