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Wednesday, Aug 15, 2012 10:45 PM UTC

Target raises profit outlook on solid 2Q sales

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Target raises profit outlook on solid 2Q salesIn this July 28, 2012 photo, shopping carts sit parked outside a Target store in Marlborough, Mass. Target is reporting that net income for the second quarter was unchanged, as the retailer gets ready for its upcoming move into Canada. But the retailer saw solid spending in the quarter and in a sign of confidence, the cheap chic discounter raised its earnings outlook. Target posted earnings Wednesday, Aug. 15, 2012 of $704 million, or $1.06 per share in the period ended July 30. That compares with $704 million or $1.03 per share, in the year ago period. (AP Photo/Bill Sikes)(Credit: AP)

NEW YORK (AP) — Target Corp. raised its full-year profit projection Wednesday after the cheap-chic discounter reported better-than-expected second-quarter revenue that showed healthy spending in food, beauty, fashion and other items.

Target, based in Minneapolis, also issued a profit outlook for the current quarter well above analysts’ expectations and cited a “positive” start to the back-to-school shopping season. The company’s stock hit its highest point since 2007.

Target’s rosier picture joins a number of other major retailers, including Macy’s Inc., TJX Cos., and Home Depot, that have boosted outlooks as they feel more confident in shoppers’ spending in the second half of the year. They’re also becoming better at luring shoppers with special deals and other attractions.

The retail earnings season hits its climax Thursday with Wal-Mart Stores Inc., the world’s largest retailer, releasing its report, along with Sears Holdings Inc. and Gap Inc. The results should offer deeper insight into consumer spending patterns.

The earnings reports, which cover the three months that ended in late July, add to a government retail sales report released Tuesday that showed Americans increased their retail spending in July by the most in five months. It offers encouraging news for the economy after retailers grappled with frugal consumer spending last spring.

Americans appear to be taking signals from the economy’s modest but steady improvements. Employers added 163,000 jobs in July, the best month for job growth since February. Home prices are up. Consumers are expressing more confidence. And stock indexes are near their highs for the year. Analysts say the start of back-to-school season gives shoppers reason to spend.

Still, unemployment is hovering at an uncomfortable 8.3 percent, and the housing market is still shaky.

And with 99 days to go until Black Friday, retailers are cautious about the holiday shopping season.

“As we look ahead, we’re mindful of the continued economic challenges facing many of our guests,” Gregg Steinhafel, Target’s chairman, president and CEO told investors on a call with analysts on Wednesday.

Target, which sells clothes and trendy decor under the same roof as toothpaste and cereal, has reached out to customers with two growth initiatives. It has been offering a larger selection of food and also a program it started in 2010, which gives shoppers a 5 percent discount when they pay with Target-branded credit and debit cards.

It has also expanded into urban markets using smaller versions of its big-box stores. It said Wednesday that it was pleased with the performance of its first three CityTarget locations in Seattle, Los Angeles and Chicago, which opened last month. Company executives foresee opening anywhere from 75 to a couple of hundred CityTarget stores.

Target is also preparing to move into Canada next year, its first expansion outside the U.S. It will soon begin opening the first of between 125 and 135 stores at store locations once owned by Canadian retailer Zellers.

Target posted earnings Wednesday of $704 million, or $1.06 per share, for the period ended July 30. That compares with $704 million or $1.03 per share, in the same period last year.

Excluding expenses tied to its Canadian entry, Target earned $1.12 per share, which easily topped expectations of $1.01 per share on Wall Street, according to FactSet.

Revenue rose 3.5 percent to $16.78 billion in the quarter. Analysts had expected $16.75 billion. Revenue at stores opened at least a year rose 3.1 percent.

Target’s is the latest in a series of positive reports from stores:

— On Tuesday, Home Depot, the nation’s largest home-improvement retailer, said healthy sales of paint, bathroom accessories and kitchen installations helped lift its second-quarter net income 12 percent.

— TJX Cos., which sells discounted brand names under such store banners as T.J. Maxx and HomeGoods, said its second-quarter net income jumped 21 percent on better sales.

— Macy’s raised its annual earnings guidance last week after reporting a 16 percent increase in net income in the second quarter. Macy’s executives specifically cited a pickup in their teen clothing business, which had been weak.

Not everyone is faring well. A handful of stragglers have been hurt by mistakes in merchandising or prices that turned off shoppers. Those who have a significant presence in Europe have also been stung by that region’s debt crisis.

Among those: Teen merchant Abercrombie & Fitch Co. It has been struggling to sell its preppy jeans and T-shirts at a time when fashion trends are shifting and a rough economy has left teens around the world on tighter budgets. It’s been grappling with weaker sales from its stores in Europe, compounding weakening U.S. sales.

Target forecast earnings per share for the current quarter to be anywhere from 83 cents to 93 cents. Analysts surveyed by FactSet expected 77 cents. Target also raised its profit guidance for the year by a nickel to $4.65 to $4.85 per share. Analysts had been expecting only $4.30 per share.

Target’s shares rose 1.8 percent, or $1.12, to close at $64.50 Wednesday. They are up 26 percent since the beginning of the year.

More By Anne D'innocenzio.

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