Target's Q4 Profits Rise 11%

Mobile Rollout Accelerates

By Alan Wolf -- TWICE, 2/24/2011

Minneapolis - Target's fourth-quarter earnings rose 10.5 percent to $1 billion on soaring credit card profits and strong retail operating margins.

Net sales rose 2.8 percent to $20.3 billion for the three months ended Jan. 29, and comp-store sales increased 2.4 percent.

The credit card segment, which Target is looking to sell, posted a 287-percent spike in fourth-quarter profits, to $151 million.

In a conference call, merchandising executive VP Kathee Tesija acknowledged that Target's CE, entertainment and home product businesses are "more difficult" than other merchandise sectors.

However, she said the CE department will be boosted by the addition of 600 RadioShack-operated mobile kiosks by June, for a total of 1,450 installations, plus the March launch of Nintendo's 3DS handheld gaming system. Target is "over-indexed with Nintendo" as a family-focused retailer, Tesija noted, and the chain's 5-percent cashback program, through its private-label credit card, will provide a price advantage with the device's controlled $249.99 retail.

Despite challenges within certain CE categories, the department remains "a very productive part of the store," and Target has no plans to dramatically reduce its packaged media assortment. "We've cut space there over the last several years but we picked it up in digital sales," she said.

Outside the stores, the company continues to invest in m-commerce, which tripled in growth and represented 8 percent of its online page views last year. Target is also developing its own e-commerce platform in anticipation of severing its ties with third-party provider Amazon.com in the third quarter.

Despite the solid quarterly report, Tesija said consumers remain value-focused, risk-averse and concerned about their jobs. They're choosing good, rather than better and best products, and are using the savings to splurge only occasionally on premium items.

"Consumers think and behave differently," she said. "There's a new economic reality."