Optimistic outlook driven by accelerating comps

It would appear the year is playing out much as Target’s senior executives envisioned many months ago when guidance was provided regarding how the retailer’s sales performance was likely to unfold. As expected, the second quarter same-store sales increase of 3.9% was an acceleration of the 2% gain reported during the first quarter, and now further improvement is anticipated during the third and fourth quarter judging from upwardly revised profit targets shared with investors.

During the third quarter, Target expects to earn between 70 cents to 75 cents per share, which is a range that encompasses the 71 cents a share analysts had expected prior to the release of second quarter results. The company’s full year outlook is where things get interesting because analysts had expected a full year profit of $4.12, but Target boosted its profit range to $4.15 to $4.30 implying anticipated strong results from the imminent relaunch of Target.com and the upcoming holidays.

The heightened expectations followed a strong showing in the second quarter despite some significant ongoing economic headwinds. The $1.03 profit figure the company reported was six cents better than analysts had expected thanks to effectiveness of such key strategies as the PFresh rollout and REDcard Rewards and was fairly broad based strength across categories and geographies.

Retail sales increased 5.1% to $15.9 billion from $15.1 billion and operating profit for the retail business increased 4.6% to $1.147 billion from $1.096 billion. Operating profits in the company’s credit card segment grew nearly 15% to $171 million from $149 million the prior year despite revenues that declined to $345 million from $406 million as Target incurred just $15 million in bad debt expense compared to $138 million the prior year.

“We’re very pleased with our second quarter financial results, which benefited from acceleration in the pace of our comparable-store sales growth,” said Gregg Steinhafel, Target chairman, president, and CEO. “We continue to focus on strong execution of our strategy, preparing Target to perform well in a variety of economic environments.”