NEW YORK - Target (TGT) reported a 3.2 percent rise in its third-quarter profit, beating Wall Street expectations as shoppers spent more on beauty products and back-to-school fashions.
The results, which included its first increase in a key revenue measure in a year, are encouraging as the discount retailer gears up for the official start of the holiday shopping season, which kicks off next weekend. Last year, Target had a solid start to the shopping season but a data breach disclosed a week before Christmas sent customers fleeing for months and hurt sales and profits.
Shares rose almost 5 percent on the news in morning trading Wednesday.
The data theft, which compromised millions of credit and debit cards, was a major factor in the ousting of CEO Gregg Steinhafel in May. Former PepsiCo executive Brian Cornell took over in August, and has the task of keeping the momentum going and reclaiming the retailer's image as a purveyor of cheap chic fashions and home decor.
Cornell must also salvage Target's botched entry into Canada in 2013, which has been a big drag on profits.
Target is playing catch-up, particularly with Amazon.com, and has put into place a service that allows people to order online and pick up goods at a store. It is also cutting shipping time by using its network of stores to accommodate online shopping.
Like many retailers catering to middle income shoppers, Target is wrestling with a customer who is still not benefiting from a recovering economy and is struggling with stagnant wages.
"Overall, we were pleased with the third-quarter performance," John Mulligan, Target's chief financial officer, told reporters in a conference call following the release of the results. But he added, "We recognize we still have a lot of work to do as we continue to heal the U.S. business."
Mulligan noted that while low gas prices are leaving shoppers with more money to spend, it's hard to make the correlation with the data. And he said customers are still dealing with a lot of cross-currents so he believes shoppers will remain focused on deals.
Meanwhile, operations in Canada have improved ahead of the holiday season with changes to its pricing and product assortment. But Mulligan told reporters that it will assess its business after the fourth quarter to see what other steps it should take.
Even before Cornell assumed the helm, Target had begun to reassess its operations, sprucing up its baby department, adding mannequins to its fashion areas and added beauty advisers assist customers. Cornell is now focused on a handful of areas like children's products, fashion and furniture. That could mean less reliance on groceries.
That would be a dramatic change from just a few years ago when Target aggressively expanded into groceries during the recession to increase traffic in its stores. Over the past eight years, fashion and home furnishings sales have dropped from a combined 47 percent to 36 percent of total sales. At the same time, food, pet supplies as well as household essentials rose from 30 percent to 46 percent of total sales, according to UBS retail analyst Michael Lasser.
Target has unveiled an aggressive plan to win its share of holiday sales this year. The company plans to open stores at 6 p.m. on Thanksgiving Day, two hours earlier than last year.
That's the same time that Walmart plans to begin offering its door-buster deals.
Starting in late October, Target began offering free shipping on all items including $6 lipstick until Dec. 20.
Walmart announced Tuesday that for the second year in a row, it is lowering its prices on popular toys, electronics and other items to match or beat select Black Friday deals from top rivals. The sale, which doubles the number of items included in the pre-Black Friday event last year, starts Friday.
But the results posted Wednesday show that Target has a chance of winning back shoppers during the most important shopping period of the year.
Target, based in Minneapolis, reported earnings of 55 cents per share, or $352 million, for the three-month period ended Nov. 1. That compares with 54 cents per share, or $341 million, in the year ago period.
The results beat Wall Street expectations. The average estimate of analysts surveyed by Zacks Investment Research was for earnings of 47 cents per share.
Target's revenue rose 2.8 percent to $17.7 billion. Analysts expected $17.53 billion, according to Zacks.
Target posted a 1.2 percent gain in revenue at stores opened at least a year. That was better than Target's expected range of unchanged to up 1 percent. It marked the first increase in that measure since the third quarter of fiscal 2013.
The period marked the eighth quarter in a row that the number of customers visiting Target has been down. But Mulligan told reporters that the 0.4 percent decline is a full percentage better than where Target was earlier in the year.
Shares rose $3.11, or 4.6 percent, to $70.62 in morning trading Wednesday.