By Nandita Bose
CHICAGO (Reuters) - Target Corp (N:TGT) on Wednesday reported a much higher-than-expected quarterly profit after benefiting from a strong back-to-school shopping season and increased online sales, and it gave an optimistic outlook for the all-important holiday period.
The Minneapolis-based retailer's shares, which had been down nearly 2 percent year to date, rose 7.7 percent to $76.94 in midday trading.
Results have improved from recent quarters, when competition from online rivals like Amazon.com Inc (O:AMZN) and slower sales of smaller items like electronics and food hurt Target's earnings. The company had to shake up its top leadership, with three high-profile exits in the past four months.
Target's sales for the third quarter ended on Oct. 29 showed the company was still losing market share, said Neil Saunders, chief executive officer of research firm Conlumino.
"Although Target's performance has improved, it would be wrong to say that it is now a company firing on all cylinders," he said.
The company said demand for Apple Inc (O:AAPL) merchandise, which had been disappointing in the second quarter, improved because of new products like the iPhone 7. Ahead of the holidays, advance orders for the brand were three times higher than a year earlier,
Target said it expected consumer spending to remain strong through the holidays. Last week, department store rivals Macy's Inc (N:M) and Kohl's Corp (N:KSS) forecast an acceleration this quarter.
Target CEO Brian Cornell said store visits increased and sales trends improved by a percentage point during the third quarter.
Digital sales jumped 26 percent, an acceleration from previous quarters. Comparable sales in high-margin "signature" categories such as baby, health and wellness outpaced those overall by three percentage points.
"As we move into the biggest quarter of the year, we are pleased with our inventory position," Cornell said.
Target, which has been investing heavily to improve its supply chain for over a year, said it would be well-stocked during the holiday season even though it will keep its overall inventory base lower than last year.
The retailer also stress-tested its website with a promotion during the third quarter and said it was prepared to handle the surge in online orders. Last year, the website crashed briefly during Cyber Monday, the biggest U.S. online shopping day, which falls right after the Thanksgiving weekend.
Target forecast fiscal-year earnings of $5.10 to $5.30 per share, excluding special items, up from a prior outlook of $4.80 to $5.20. It also raised the forecast for its sales performance at stores open at least a year by one percentage point to a range of down 1 percent to up 1 percent for this quarter.
Net income attributable to Target rose nearly 11 percent to $608 million in the third quarter from a year earlier.
Earnings of $1.04 per share before special items beat the analysts' average estimate of 83 cents, according to Thomson Reuters I/B/E/S.
Total sales fell 6.7 percent to $16.4 billion. Same-store sales dipped 0.2 percent, while analysts on average had expected a decline 1.1 percent, according to research firm Consensus Metrix.