Target turns corner with surprise profits gain, even Canada rebounds

Target Corp is showing distinct signs of recovery as the US-based value retail giant Wednesday beat its own domestic Q3 sales forecast while delivering a surprise profit hike, emerging from the costly data-breach shadows. Even its beleaguered Canadian ops rebounded in the quarter.

The good news sent its shares up 7.4% to $72.50, its highest level in more than a year and its biggest one-day gain since 2009.

Another highlight was a rebound in combined apparel and home sales to the strongest level in two years, it noted

“We’re pleased with our third quarter financial results, which were driven by better-than-expected performance in our US segment,” said CEO Brian Cornell

Profit for the quarter rose 3.1% to $352m/55 cents a shares from $341m/54 cents a year ago. Adjusted earnings per share dropped 3% to 54 cents, beating analysts’ expectation of 47 cents.

In Q2, profit plummeted over 60% on the expense related to last winter’s data breach.

Sales rose 2.8% to $17.7bn, ahead of the $17.5bn analysts expected.

In Q3, foot traffic fell 0.4% on-year but that was a marked improvement from Q2 when footfall fell 1.3%, and by 2.3% in Q1.

“We’re encouraged that the pace of US traffic continues to recover from a very challenging trend earlier this year,” Cornell noted.

Target said consumers responded well to its Back-to-School and Halloween promotions. It also reported strong sales of health and beauty items, which helped counteract the trend of weaker apparel sales due to unusually warm early autumn weather that had marred results of some other retailers.

However, Target is making a major push in apparel, especially for the Holidays, when it will offer 40% off most clothes for three days starting on Thanksgiving, a deal one analyst called the most aggressive of the big shopping weekend. In October and November, the retailer completed its new display format for apparel in an additional 600 stores, bringing in mannequins to better show off its line.

“We will continue to push forward in those areas and you’ll see more and more as the months and year goes on,” Target said.

Cornell, meanwhile, has also been busy trying to turn around the struggling Canada ops where it began opening stores in 2013. Operations there also showed signs of improvement with sales up 43.8% from the year-ago, but up against weak comparisons.

“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.

Target said it now expected full-year earnings per share of $3.15-$3.25 from earlier estimates of $3.10-$3.30.

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