Target Corp., the second-largest U.S. discount retailer, on Thursday reported second-quarter net income of $540 million, topping analysts' estimates, as record heat drove demand for summer apparel.
Net income fell 62 percent to 61 cents a share, from $1.41 billion, or $1.53, a year earlier, when the retailer had a gain from the sale of its Marshall Field's chain, the company said. Revenue in the quarter ended July 31 rose 14 percent to $12 billion, the biggest increase in five quarters at Minneapolis-based Target.
Target sold more groceries and hot-weather apparel, such as Mossimo swim tops and Ultimate polo shirts, boosting same-store sales 6.7 percent. The company's higher-end goods by designers such as Mossimo and Isaac Mizrahi helped its sales in the past year outperform Wal-Mart Stores Inc., which is beginning to offer upscale merchandise including 400-thread-count sheets.
Target "has captured trends and played right into the aspirational consumer" who desires more fashionable goods, said Seattle-based Patricia Edwards, a managing director at Wentworth, Hauser & Violich, which has $5.7 billion in assets including Target shares. "For Wal-Mart to pull this off, they're going to have to 'out-Target' Target. It's a tough sell."
Target was expected to earn 59 cents a share, the average estimate of 22 analysts surveyed by Thomson Financial. The retailer boosted profit by a $1.14 a share a year ago mostly from the sale of Marshall Field's to May Department Stores Co.
This June was the warmest and driest June in the U.S. in three years, according to SDA/Weather Trends, a Plymouth Meeting, Pennsylvania-based firm that helps companies forecast consumer demand. July was among the 14 hottest Julys since 1895.
Credit-card revenues rose 16 percent to $323 million. The retailer said separately Thursday that Smith & Hawken, the upscale gardening company based in Novato, Calif., will make an exclusive line of gardening and outdoor living items for the retailer to debut late this year.
Target will double its food offerings or add refrigerated coolers to about half of its stores by the end of year. Its exclusive line of food is growing to less than 15 percent of grocery sales from 10 percent. The retailer is also adding more higher-priced apparel, footwear and accessories and will double the number of products to 200,000, including back-to-school items, on its Web site by the end of the year.
Chief Executive Officer Robert Ulrich, 62, introduced in March the Isaac Mizrahi home collection including a $240 dresser. Target will debut Modern Vintage, a new home products line by designer Thomas O'Brien, in October. -->
Wal-Mart, based in Bentonville, Ark., reports its second-quarter earnings Tuesday. Wal-Mart is expected to earn 65 cents per share, the average estimate of 23 analysts surveyed by Thomson Financial, compared with 62 cents a year ago.
Target's same-store sales in the past 12 months averaged 5.8 percent compared with 2.7 percent at Wal-Mart. The average retail price for regular-grade gasoline hit a new high of almost $2.33 a gallon in the week ended July 11, the Energy Department said.