MINNEAPOLIS — Target Corp., the nation's No. 2 discount retailer, on Thursday reported an 18 percent drop in third-quarter earnings versus a year ago when a one-time gain inflated its profits, but it still beat Wall Street expectations. The company's shares soared 4 percent.
Expanding profit margins helped Target during the quarter, but company officials said they're not expecting that to happen again during the Christmas shopping season in the fourth quarter.
"As always, we expect this holiday season to be very promotional and highly competitive," President Gregg Steinhafel said during a conference call with analysts. Last year, retailers resorted to deep discounting during the holiday season, although profits were generally strong.
Earnings for the quarter ending Oct. 29 fell to $435 million, or 49 cents per share, from $531 million, or 59 cents per share the year before, when the sale of its Mervyns chain boosted earnings by $203 million.
Earnings from continuing operations rose 34 percent to $435 million, or 49 cents per share, from $324 million, or 36 cents per share, during the same period last year.
Revenue grew 12 percent to $12.21 billion from $10.91 billion, driven by a 5.9 percent gain in sales at stores open at least one year and credit card profits that jumped $38 million, or 31 percent.
Steinhafel said Target's same-store sales growth was driven by adult clothing, food and commodities. The company predicted fourth-quarter same-store sales growth of 4 percent to 6 percent.
Target shares rose $2.29, or 4 percent, to close at $58.85 Thursday on the New York Stock Exchange. They are down from a 52-week high of $60 in July.
Analysts surveyed by Thomson Financial expected Target to report earnings of 45 cents per share on revenue of $12.15 billion.
The company said it had $20 million in hurricane losses, mostly damage to stores and inventory.
Target reaffirmed expectations for earnings of $1.50 or more for the second half of the company's fiscal year, which ends in January, versus the $1.52 expected by analysts, including $1.07 for the fourth quarter. Because Target already earned 49 cents per share in the third quarter, the guidance implies $1.01 for the fourth quarter — below what Wall Street was expecting.
The company's "guidance does appear conservative (as usual)," even considering lower margin growth and a competitive holiday sales environment, Goldman Sachs analyst Adrianne Shapira wrote in a note to investors.