A stronger credit-card business helped Target Corp.'s net income rise 2.7 percent in the first quarter, even as customers were cautious about buying because of higher gas and food prices.
Target's credit-card business, which it uses to drive sales by offering a 5 percent discount, had to set aside less money to account for cardholders who didn't pay their bills.
The discounter said Wednesday it earned $689 million, or 99 cents per share, for the three months ended April 30. That compares with $671 million, or 90 cents per share, in the same period last year.
Total revenue rose 2.2 percent to $15.93 billion. Revenue at stores open at least a year rose 2 percent. The gauge is considered an important performance indicator because it excludes stores that recently opened or closed.
Analysts expected earnings of 95 cents on revenue of $15.99 billion, according to FactSet.
"Our first-quarter financial performance was the result of stronger-than-expected profitability in our credit card segment, which offset the impact of weaker-than-anticipated sales in our retail segment," Gregg Steinhafel, Target's chairman, president and CEO, said in a statement.
He noted that shoppers remain "cautious" in their spending.
Earlier this month when the discounter reported April sales, Steinhafel said in a release that customers are feeling squeezed by the rising costs of gas and groceries.
The weak sales come even as Target has counted on two major initiatives to drive shoppers to its stores: expanding grocery sections and offering the discount to shoppers who use the store's branded debit or credit cards.
Data on customer spending behavior in the latest quarter showed that the number of customers that bought items was essentially flat, but they bought 4.4 percent more items than the same period a year ago, according to the Target release. However, the selling price per unit fell 2.6 percent.
Target's gross profit margin slipped to 30.4 percent during the first quarter from 31.3 percent in the first quarter of 2010. Food typically carries thinner profit margins than general merchandise.
Target's credit card business was strong. Quarterly profit was $194 million, compared with $111 million in the last year's quarter. Bad debt expense was $12 million in the period, down from $197 million in 2010.
Target's earnings followed a day after Wal-Mart Stores reported its eighth straight quarter of declines in revenue at stores open at least a year compared with the same quarter a year earlier.
Wal-Mart said that its high gas and food prices are adding another strain to shoppers, who are already feeling squeezed by a weak job market. Wal-Mart said shoppers are consolidating trips to save money on gas, and they are mostly buying groceries and skipping the clothing aisles.