Target Corp. raised its full-year profit projection Wednesday after the cheap chic discounter reported better-than-expected second-quarter revenue that showed healthy spending in food, beauty products and other items.
Target, based in Minneapolis, also issued a profit outlook for the current quarter that is well above analysts’ expectations. The company’s stock hit its highest point since 2007.
Target’s rosier picture joins a number of other major retailers, including Macy’s Inc., TJX Cos., and Home Depot, that have boosted outlooks as they feel more confident in shoppers’ spending in the second half of the year. They’re also becoming better at luring shoppers with special deals and other attractions.
The earnings reports, which cover the three months that ended in late July, add to a government retail sales report released Tuesday that showed Americans increased their retail spending in July by the most in five months. It offers encouraging news for the economy after retailers grappled with frugal consumer spending last spring.
Americans appear to be taking signals from the economy’s modest but steady improvements. Employers added 163,000 jobs in July, the best month for job growth since February. Home prices are up. Consumers are expressing more confidence. And stock indexes are near their highs for the year. Still, unemployment is hovering at an uncomfortable 8.3 percent, and the housing market is still shaky. Analysts say that the start of back-to-school season, which kicked off last month, gives shoppers reason to spend.
With job growth sputtering in the spring, “there was a lot of gloominess heading into the second quarter,” said analyst Brian Sozzi of NBG Productions. “Consumers continue to show when they’re forced to spend, they might spend a little more.”
Like most retailers, Target’s challenge has been luring shoppers into stores during a yo-yo economic recovery.
Target, which sells clothes and trendy decor under the same roof as toothpaste and cereal, has reached out to customers with two growth initiatives. It has been offering a larger selection of food and also a program it started in 2010, which gives shoppers a 5 percent discount when they pay with Target-branded credit and debit cards.
It has also expanded into urban markets using smaller versions of its big-box stores. It said Wednesday that it was pleased with the performance of its first three City Target locations in Seattle, Los Angeles and Chicago.
It’s now looking outside the country for growth, as well. Target is preparing to move into Canada next year, its first expansion outside the U.S. It will soon begin opening the first of between 125 and 135 stores at store locations once owned by Canadian retailer Zellers.
And Target announced last month that it was teaming up with luxury merchant Neiman Marcus to offer a limited collection spanning from fashion to sporting goods for the winter holidays. More than 50 products from 24 designers, including Oscar de la Renta and Diane von Furstenberg as well as younger designers such as Derek Lam, will be available at both stores and online starting Dec. 1.
Target posted earnings Wednesday of $704 million, or $1.06 per share, for the period ended July 30. That compares with $704 million or $1.03 per share, in the same period last year.
Excluding expenses tied to its Canadian entry, Target earned $1.12 per share, which easily topped expectations of $1.01 per share on Wall Street, according to FactSet.
Revenue rose 3.5 percent to $16.78 billion in the quarter. Analysts had expected $16.75 billion. Revenue at stores opened at least a year rose 3.1 percent.
Target’s is the latest in a series of positive reports from stores:
— On Tuesday, Home Depot, the nation’s largest home-improvement retailer, said healthy sales of paint, bathroom accessories and kitchen installations helped lift its second-quarter net income 12 percent.
— TJX Cos., which sells discounted brand names under such store banners as T.J. Maxx and HomeGoods, said its second-quarter net income jumped 21 percent on better sales.
— Macy’s raised its annual earnings guidance last week after reporting a 16 percent increase in net income in the second quarter. Macy’s executives specifically cited a pickup in their teen clothing business, which had been weak.
Target forecast earnings per share for the current quarter to be anywhere from 83 cents to 93 cents. Analysts surveyed by FactSet expected 77 cents. Target also raised its profit guidance for the year by a nickel to $4.65 to $4.85 per share. Analysts had been expecting only $4.30 per share.
Target’s shares rose almost 2 percent, or $1.13, to $64.51 in morning trading. They are up 25 percent since the beginning of the year.