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Target 3Q Sees Shoppers Adding "Indulgences" to Cart Along with Groceries

MINNEAPOLIS - Target's consumers remained cautious about spending in the third quarter, but the discount chain still managed double-digit gains in earnings and more modest increases in sales and comps as shoppers engaged in "occasional indulgences."
     During Target Corp.'s quarterly earnings call last month, evp of merchandising Kathryn Tesija explained the evolving trend.
     "Guests continue to be very deliberate in their shopping behavior," she said, later adding, "The recession taught them to create and live within budget, and even as the economy improves, they continue to shop with a list. More recently, our guests have started to put an occasional indulgence on that list. In those cases, they're willing to wait and save for the right item rather than settling for a substitute item at a lower price point. To feel good about these occasional indulgences, guests focus intently on price and value in their everyday purchases."
     This, coupled with several other initiatives like the emphasis on food and consumables in remodeled stores, helped drive Target Corp.'s third quarter results.
     The 1,752-unit chain saw net earnings increase 22.6% to $535 million in the third quarter, which ended October 30. Earnings per share were up 28.5% to 74 cents from 58 cents.
     Sales rose 3.0% to $15.2 billion from $14.8 billion in 2009, due to a 1.6% increase in comparable- store sales combined with the contribution from new stores. Traffic was up over 2.0%.
     Year to date, results included: a 21.4% increase in net earnings to $1.885 billion from $1.552 billion; a 4.1% rise in sales to $45.5 billion from $43.7 billion; and a comp gain of 2.0%.
     By product category, Target said in the third quarter it "continued to gain market share in categories throughout the store, with meaningful gains in beauty, baby, apparel, toys, healthcare and, of course, grocery," Tesija noted, adding that grocery is growing at a double-digit pace, particularly in remodeled stores.
     Home was not among the highlights for the quarter, but it did generate positive sales, driven by seasonal back-to-school and back-to-college product offerings, she added.
     To accommodate the stepped-up food assortment at remodeled stores, other departments such as home were edited and given a new presentation.
     In 2011, the retailer expects to "set new record" by remodeling 380 additional existing sites and add about 400 additional new locations to the total store count that incorporate the new design, layout, and presentation, said Gregg Steinhafel, chairman, president and ceo.
     By comparison, Target in the third quarter opened 10 new stores, completing its 2010 new store program, and completed more than 100 remodels for a total of 341 for year.
     To date, Target is operating 462 general merchandise stores that incorporate the expanded food "as well as hundreds of sited with our expanded and updated design in several departments," including home, he said.

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