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Target profit beats views as store card draws shoppers

A Target employee returns carts to the store in Falls Church, Virginia May 14, 2012. REUTERS/Kevin Lamarque
A Target employee returns carts to the store in Falls Church, Virginia May 14, 2012. REUTERS/Kevin Lamarque

By Phil Wahba

(Reuters) - Target Corp's quarterly profit beat Wall Street forecasts as the discount chain lured more shoppers with its store debit and credit cards and a wider variety of food products.

Target said 14 percent of sales during the quarter were paid for with its debit and credit cards, compared with 9.5 percent a year earlier. The cards, which offer a discount, are a cornerstone of Target's growth strategy.

"The RedCard is really a way to differentiate themselves and a way to push growth," said Edward Jones analyst Brian Yarbrough.

Adding more food and offering the 5-percent card discounts weighed on profitability; gross margin during the quarter slipped 0.2 points to 30.3 percent of sales. But Yarborough said Target had managed costs to minimize the impact.

Target said it had earned $637 million, or 96 cents per share, in the third quarter ended on October 27, up from $555 million, or 82 cents per share, a year earlier.

Excluding a gain from the pending sale of its credit card receivables, the profit was 81 cents per share, 4 cents more than what Wall Street analysts were expecting, according to Thomson Reuters I/B/E/S.

The company said it expected to earn between $1.45 and $1.55 per share in the holiday quarter, including expenses linked to its entry into Canada next year. That compares with analysts' forecasts of $1.51.

Target is changing its strategy this quarter to try to increase its market share during the holiday season. It is offering to match certain online retailers' prices and will open its stores at 9 p.m. on Thanksgiving Day, rather than staying closed for that holiday.

The company has been opening smaller city stores and is set to open its first Canadian stores in 2013. It will also sell a line of holiday goods with upscale department store Neiman Marcus Group Inc in December.

Target previously said third-quarter sales had increased 3.4 percent to $16.60 billion. Sales at stores open at least a year were up 2.9 percent, helped by higher prices and customers' buying more items per transaction.

Shares of Target were up 0.8 percent at $61.90 in morning trading on the New York Stock Exchange.

(Reporting by Phil Wahba in New York and Jessica Wohl in Chicago; Editing by Jeffrey Benkoe and Lisa Von Ahn)

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