Target's Profit Tops Expectations

Target Corp. on Wednesday reported a better-than-expected 52% increase in profit in its first quarter as its stores attracted more shoppers who spent more on average.

The company also boosted the bottom end of its full-year outlook by five cents, now calling for $4.50 to $4.65 a share in earnings.

Chief Executive Brian Cornell said the company saw strong sales growth in its apparel, home and beauty categories in the latest quarter, while digital sales also grew about 38%.

Target is trying to dig itself out of a hole left from several years of disappointing results, when the retailer failed to distinguish itself with enough hip products and found itself trying to stand out with lower prices on commodities goods like toilet paper and laundry detergent. The long string of weakness—capped by the disastrous expansion into Canada and a 2013 data breach—caused executives to rethink Target's purpose and forced the removal of their prior CEO, Gregg Steinhafel.

Under Mr. Cornell, Target has been working to place more focus on signature categories like fashion, furniture, baby goods and beauty products.

The company also is remaking its grocery business, de-emphasizing packaged and processed from top suppliers like Campbell Soup Co. in favor of specialty products like fancy sauces and oils popular among millennials.

In the latest quarter, sales excluding newly opened and closed stores rose 2.3%, narrowly topping Target's February projection for growth of 2%.

The increase was driven by a 0.9% uptick in number of transactions and a 1.4% increase in average transaction value.

In all, for the quarter ended May 2, Target posted a profit of $635 million, or 98 cents a share, compared with a profit of $418 million, or 66 cents a share, a year earlier.

Earnings from continuing operations, excluding one-time items, were $1.10 a share. Target had forecast per-share earnings of 95 cents to $1.05, while analysts polled by Thomson Reuters were looking for $1.03 a share in earnings.

Net sales grew 2.8% to $17.1 billion, meeting analysts's expectations.

Target booked $16 million in after-tax losses in the quarter related to exiting its Canada business and spent $3 million in the quarter related to its data breach.

For the current quarter, Target forecast $1.04 to $1.14 a share in earnings, while analysts polled by Thomson Reuters had forecast $1.12 a share.

The results come a day after Wal-Mart Stores Inc. posted a slim gain in U.S. sales for its first quarter, but the cost of higher wages and the strong dollar pushed its profit down. Department stores like Macy's Inc. have also reported soft sales, and government data for overall retail sales has often been flat or down in recent months.

Despite lower gas prices, rising wages and low unemployment rates, the string of lackluster results from retailers has fueled concern that the economy hit a soft patch at the beginning of the year.

Write to Chelsey Dulaney at [e-mail]

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