Minneapolis - Strong retail operating margin helped offset slower sales at Target during its second quarter, ended Aug. 1.
Profits slipped 6.4 percent to $594 million, beating analysts' estimates, while total sales edged down 2.7 percent to $14.6 billion and comp-store sales declined 6.2 percent for the three-month period.
"Second-quarter earnings were stronger than expected due to very strong operating margin in our retail segment, and [to] credit card segment performance in line with expectations," said Gregg Steinhafel, chairman, president and CEO of the discount chain.
Retail segment earnings before interest expense and income taxes (EBIT) decreased 3.1 percent to $1 billion. Gross margin rate increased to 31.9 percent, from 31.2 percent last year due, due to margin improvements within certain product categories, although the gains were partially offset by the unfavorable impact on product mix of faster sales growth in non-discretionary, lower margin-rate categories.
Selling, general and administrative (SG&A) expense dollars were down 0.4 percent from the year-ago period, thanks to productivity improvements that offset the expense of operating 71 additional stores in 2009.
Average credit card receivables decreased $150 million, or 1.8 percent, and quarter-end receivables decreased $349 million, or 4 percent, the company said. Credit card segment profit fell 15 percent to $63 million as a result of reduced investment and lower floating interest rates, partially offset by improved portfolio performance.
Looking ahead to the second half, Steinhafel said the company "is focused on initiatives to drive incremental traffic and sales in our stores while maintaining disciplined execution in both of our business segments."
In a conference call, executives cited slower traffic and lower transaction amounts as customers made fewer store trips and cut back on discretionary purchases. Nevertheless, Target enjoyed share gains in CE due to the closure of Circuit City and brisk sales of TVs, computer peripherals and portable audio, they said.