Target rebounds and tops Street with strong Q3 helped by increased promotional activity

Minneapolis — Target Corp. gained some momentum going into the holiday season with a third quarter that beat both Wall Street and internal expectations as sales as its U.S. stores exceeded estimates and its troubled Canadian division showed signs of improvement. Its results were also driven by increased promotional activity. This was Target’s first quarter under the leadership of CEO Brian Cornell, who replaced Gregg Steinhafel in August.



Third-quarter net income rose 3% to $352 million, from $341 million in the previous year. Sales increased 3% to $17.73 million from $17.26 million. Same-store sales rose 1.2% in the U.S., better than the 1% forecast, and 1.6% in Canada.Target said it increased its promotional activity, causing gross margins to contract to 29.5% from 30%. As a result, operating profits declined to $927 million from $977 million in the third quarter the prior year.



“We’re encouraged by the improving trend we’ve seen in our U.S. business throughout the year, and our fourth quarter plans are designed to sustain this momentum. In Canada, we’ve made improvements to our operations, pricing and assortment in time for the holiday season, and we’re eager to measure how our guests respond,” Cornell said in a statement.”



Target incurred $12 million in expenses related to the data breach it experienced in the fourth quarter of 2013. In total, Target has incurred net breach-related expenses of $158 million, reflecting $248 million of gross expenses, partially offset by a $90 million insurance receivable.Target believes this figure represents the vast majority of actual and potential breach-related claims, including claims by payment card networks, although the company said there could be future losses related to the breach, as well as future breach-related legal, consulting and/or administrative fees.



Target said sales at its 133 stores in Canada increased 43.8% to $479 million boosted by the addition of new units and a 1.6% comp increase at the 82 Target Canada stores.The Canadian division reported an operating loss of $211 million, but that was better than a prior year loss of $238 million. Target’s gross margins in Canada improved to 19.5% compared to 14.8% the prior year when inventory clearance efforts were more extreme.