(Updates to add analysts' comments, updates premarket stock price, and adds details on results)
By Karen Talley and Joan E. Solsman
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)
Target, like other retailers, took a tempered view of the holiday season. The retailer did not offer an earnings projection for the period but said it "remains cautious," given the still-soft economy and expectations for a "highly promotional" holiday season.
"We've already seen very promotional pricing, with Wal-Mart as an example, and that's only going to continue," said Kim Picciola, retail analyst with Morningstar.
Wal-Mart Stores Inc. (WMT) has fired a number of salvos through its brick-and-mortar stores offering big discounts on products like toys and its online unit sparking price wars for DVDs and books.
Still, even Wal-Mart is guarded about the holidays. The world's biggest retailer last week posted higher third-quarter earnings and said customer traffic in the U.S. has improved, although its outlook for the holiday season was muted compared with analysts' expectations. Macy's Inc. (M), Kohl's Corp. (KSS) and J.C. Penney Co. (JCP) have all offered tempered guidance for the holidays, which generally accounts for the bulk of their business.
Projections for holiday spending are hovering around flat from last year, which was the worst holiday period since the data have been tracked.
Chairman and Chief Executive Gregg Steinhafel said in a news release profitability in the retail segment was well above expectations.
"Despite a weak topline and shift towards more basic goods, like food and consumables, Target is able to improve its gross margin, which shows they are managing inventory well," Picciola said.
During the recession, shoppers have steered away from Target's cheap-chic offerings to retail market leader Wal-Mart as it delivers low costs. J.C. Penney Co. Inc. (JCP) has also been coming at Target by continuing to up its own quotient of exclusive, relatively low cost apparel.
Target, unlike most other retailers, also operates its own credit card operation, and the unit's delinquency struggles have weighed on the bottom line. Tuesday, the segment continued to see delinquencies rise, although its profitability improved.
For the period ended Oct. 31, Target posted a profit of $436 million, or 58 cents a share, from $369 million, or 49 cents a share, a year earlier. In October, the company predicted earnings would be above analysts' then-expectations. The most recent average was 50 cents a share, according to Thomson Reuters.
Revenue increased 1.1% to $15.28 billion. Analysts surveyed by Thomson Reuters predicted $15.25 billion. The company said earlier this month that same-store sales fell 1.6%.
Retail gross margin rose to 30.8% from 30.6% as the segment's earnings climbed 2.4%.
The credit-card segment saw profit surge 72% on improved portfolio performance that more than offset the impact of lower floating interest rates. Bad-debt expenses dropped 4.1%. The allowance for doubtful accounts rose 2.1% sequentially to $1.03 billion.
Accounts at least 60 days late grew to 6.5% of receivables from 5.6% a year earlier and 5.8% in the previous quarter. The 90-day delinquency rate increased to 4.6% from 3.8% and 4.1%, respectively.
Target shares were flat at $50.60 premarket. The stock, which hit a six-year low in March, was up 46% from the beginning of the year through Monday.
-By Karen Talley and Joan E. Solsman, Dow Jones Newswires; 212-416-2196; karen.talley@dowjones.com