Target (TGT) exceeded analysts' sales forecasts for its second quarter, and is banking on brisk consumer shopping patterns to continue at its 1,772 stores for the remainder of the year.
To that end, the nation's second largest discounter raised its annual profit forecast to as much as $4.40 a share from a maximum of $4.30 a share, as it adds more fresh food to stores, gets more shoppers to spend with its 5%-off REDcard and penetrates urban areas with the CityTarget format.
Target revenues rose 3.5% to $16.78 billion in the quarter that ended July 30, exceeding analysts' estimates.
Comp-store sales, revenue at stores opened at least a year, increased 3.1 percent, while earnings were $704 million, flat with the year-ago period.
The comp-store sales gain was driven by an increase in the number of transactions as well as "an increase in the average transaction amount," said Deborah Weinswig, Citi retail analyst, in a research note.
Not everything sold well, though. Electronics had another weak quarter "as this category continues to reflect mature product cycles in several categories. Most notably for us is video game hardware and software," said Kathryn Tesija, Target's executive vice president of merchandising, during the call.
And down the road, economic headwinds, such as the impending fiscal cliff -- which is expected to put a crimp in consumers' discretionary income -- could dampen business at the chain, CEO Gregg Steinhafel said during a conference call.
"As we look ahead, we are mindful of the continued economic challenges facing many of our guests, huge deficits at the state and national level and the fiscal cliff facing everyone at the end of the year," Steinhafel said. "This fall's presidential election will likely produce an avalanche of negative ads and elevate the uncertainty caused by potential policy changes that could follow the November vote."
Beyond the U.S. market, Target is gearing up for its international debut with the launch of stores in Canada next year.