Target (TGT) boosted its sales in the second quarter, as consumers took advantage of discounts and the company rolled out fresh grocery offerings. Target posted $1.12 of EPS after excluding costs to expand into Canada and tax items, beating expectations for $1.01 (it’s not entirely clear whether the Canada costs were reflected in analysts’ expectations).
Same-store sales rose 3.1% over a year ago, but gross margin slipped to 32.7% from 33.1% as the company offered various discounts, including giving 5% off to consumers who paid with Target credit and debit cards. Those discounts, and the reliance on grocery sales, have not yet fully shown up in margins, argues UBS analyst Robert Carroll.
Target’s credit card division pulled in less revenue than a year ago, but was more profitable as bad debt expenses fell. “Delinquencies declined modestly from first quarter levels, but the charge-off ratio declined sharply (80 bps to 4.9%), which speaks to improved quality of receivables,” noted RW Baird analyst Peter Benedict.
The company also reported “very lean” inventories, down about 3% per square foot, says Benedict.
Target lifted its fiscal 2012 EPS outlook raised by 10 cents to $4.20-$4.40.
“I remain positive on Target’s ability to drive growth with company specific initiatives for the next couple of years at which point Canada starts to be a more meaningful contributor,” Carroll wrote.
Shares are up 2.2%.
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