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Target Profit Rises 18%, Helped by Credit Card Business

The U.S. consumer is hitting the mark at Target. The discount retailer was one of the first to come forward and articulate concerns about the health of consumer spending in April but the big box store reported Wednesday that business overall is healthy.

The No. 2 U.S. discount chain, behind Wal-Mart Stores, said profit rose to $651 million, or 75 cents a share, in its fiscal first quarter, ended May 5, from $554 million, or 63 cents a share, in the same period a year earlier.

Analysts, on average, were expecting 71 cents a share, according to Reuters Estimates.

Company executives reported in an earnings conference call, that the softening in consumer spending during April, was due to unseasonably cold weather that kept shoppers from buying seasonal items such as apparel and patio furniture. Spending in the month of May has helped Target put that worry to rest. Any sales weakness seems to be a seasonal product story.

Revenue from the credit card division grew 13% in the quarter to $418 million from $370 million. Target posted a 4.3% increase in same-store sales while revenue increased 9.2% to $41 million dollars in the first quarter. Target expects mid-single digit same-store sales for the year. So far, sales of electronics and consumables have been strong while other items such as movies and intimate apparel have been weaker-than-average.

Target On Economy

Target
Jae C. Hong
Target

Target executives said they do not notice any signs of inflation in retail right now though Chief Financial Officer Douglas Scovanner, said there have been "aggressive increases" in the price of citrus and corn products. He also added that prices have gone up in the food and resin-based products (i.e. paper) category.

Despite that increase, consumers are not "trading down" in the price points of items they purchase and have shown little opposition to these price increases. Outside of the food category, the average transaction amount is up compared to last year.

Will Target Hit A Bullseye In May?

Target expects the calendar shift that brought Memorial Day a week earlier will translate into a full point same-store sales benefit for the month of May. Here's the rub: June may feel that loss. Target confirmed that the June comps number will be lower than the 5 - 7% same-store sales forecast for May. For 2007 overall, Target still sees earnings per share within the range of $3.60.

Target shares were a touch higher in afterhours trading after closing almost 1% higher at $58.60.

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