Earnings Preview: Target Corp.

AP News
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Posted: Nov 16, 2009 2:50 PM

Retailer Target Corp. reports earnings for its third quarter on Tuesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Target and other low-price retailers, particularly Wal-Mart Stores Inc., have benefited from consumers switching to cheaper stores and focusing on necessities. But at Target, where more than 40 percent of revenue has come from nonessentials like funky jeans and bed spreads, the cheap-chic formula that once was its strength has became a drag as shoppers focus on basics. Its profit also suffered from woes in its credit card business.

Target has reduced staff, tightened consumer credit card underwriting and pared down inventory to bolster profits.

To drive customer traffic, Target has focused on several initiatives. The chain has expanded its "low-price" promise in advertising and stores, matching competitors' local advertised prices on identical items. It also relaunched its Target Brand, which spans 40 categories including health and beauty, as Up & Up.

The chain, which late last year began testing new packaged perishable foods, plans to expand them to 100 new and remodeled stores by next month.

Online, Target has engaged in price battles on highly anticipated books and DVDs, ignited by price cuts at Walmart.com. It also has expanded the number of products it will ship for free to more than 100,000.

Target reported that sales at its stores that have been open at least a year slipped 0.1 percent in October as consumers shied away from higher-ticket items like electronics and sporting goods. Analysts expected the figure to be flat. It is considered a key indicator of a retailer's health.

BY THE NUMBERS: Analysts surveyed by Thomson Reuters on average expect Target to report earning 50 cents per share in the third quarter, which ended Nov. 1, on revenue of $15.2. A year earlier, Target earned 48 cents per share on revenue of $15.2 billion.

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ANALYST TAKE: Bill Dreher, an analyst at Deutsche Bank, noted in a recent report that Target's earnings look "solid," helped by strong gross profit margins and cost controls. He also said it is one of the retailers benefiting from the liquidation of chains like Mervyns and Circuit City.

WHAT'S AHEAD: Analysts will want to know how holiday sales are so far and whether shoppers are buying more discretionary items like home furnishings. They also will want to know Target's plans for discounting this holiday season.

STOCK PERFORMANCE: Shares of Target rose almost 15 percent in the quarter and soared almost 44 percent from the beginning of the year. They've risen almost 57 percent during the past 52 weeks overall. They closed at $49.64 Friday, toward the high end of their 52-week range of $25 to $51.77.