Target Corp. said Thursday that quarterly profit rose 34 percent, beating Wall Street estimates, on strong sales and big gains in its credit card business.
But the retailer, which ranks behind Wal-Mart Stores Inc. in the U.S. discount segment, said earnings-per-share growth in the current fourth quarter would likely reach only in the mid-teens on a percentage basis, considered a disappointment by Wall Street.
Net income increased to $435 million, or 49 cents per share, in the fiscal third quarter ended Oct. 29. That compared with $324 million, or 36 cents per share, from continuing operations a year earlier.
Target sold its Mervyn’s department stores last year. Including a gain on the sale and earnings from those operations, last year’s third-quarter profit was 59 cents per share.
Analysts, on average, expected a profit of 45 cents per share, according to Reuters Estimates. Several analysts nudged up their expectations in the past week after Target reported better-than-expected October sales growth.
Target’s strategy is to match Wal-Mart’s prices on commodity items such as cleaning supplies, and then use its trendy clothing and housewares to boost sales and profit. The plan appears to be working as Target’s sales at stores open at least a year — a key retail measure known as same-store sales — have outpaced Wal-Mart’s in recent quarters.
Wall Street has noticed too. Target’s shares trade at about 18.4 times analysts’ earnings forecasts for the next fiscal year, compared with just under 16 times for Wal-Mart.
Minneapolis-based Target said quarterly sales rose 11.9 percent to $12.2 billion, while sales at stores open at least a year — a key retail measure known as same-store sales — were up 5.9 percent.
Wal-Mart is expected to release its results next week.
Target said earnings before interest and taxes in its credit card business rose 31.2 percent to $831 million. The retailer issues its own Visa card, which has been a big profit driver in recent years.
Target is expected to give more details on expectations for the fourth quarter during a conference call with analysts later Thursday morning, but the retailer said it expects earnings per share to show a percentage increase in the mid-teens.
Last year, Target’s fourth-quarter earnings were 90 cents per share. A 15 percent increase would result in earnings of about $1.04 per share. Analysts, on average, expected $1.08, according to Reuters Estimates.
The fourth quarter includes the vital holiday shopping season, which accounts for the biggest portion of annual sales and profit. Wal-Mart has vowed aggressive discounts and advertising, putting pressure on competitors.