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Target Soars Past Competition

Credit Card Business Contributes $142 Million in Profits

Minneapolis — Widening the performance gap between itself and its rivals, Target Corp. pushed profits and same-store sales up at a sharply faster pace than its primary competitor, Wal-Mart Stores, during the opening quarter, with earnings climbing 14.6 percent, to $494 million, and comps jumping 6.2 percent.

Wal-Mart, on the other hand, moved earnings up at less than half the pace, up just 6.9 percent, its core customer base hit hard by rising gas prices. And Target same-store sales rose more than twice as high as Wal-Mart's, up 6.2 percent versus its rival's 2.8 percent increase in same-store sales.

Overall sales at Target rose 12.7 percent, to $11.2 billion from $9.9 billion. Wal-Mart's total sales advanced at a somewhat slower pace of 9.5 percent.

Driving the gains at Target, in addition to the stronger sales, was a big contribution from its credit card operation, deep cuts in interest expense and sharply wider margins.

Target's relatively new credit card business contributed a profit of $142 million, up 27.9 percent from $111 million last year. Underscoring the importance of the business, the credit operation contributed almost 18 percent of Target's operating profit during the opening quarter. And the credit business earned better than $1 in pre-tax profit for each $2 in sales.

In a boost to the bottom line, average gross margin widened 70 basis points, or seven-tenths of a percentage point, to 32.4 percent from 31.7 percent.

In another big lift, Target slashed its interest expense 22.8 percent, to $111 million from $143 million last year, yielding a cash savings of $32 million.

Target Corp.

Qtr. 4/30 (x000) 2005 2004 % change
a. Results in the prior-year first quarter include a $40.0 million profit form discontinued operations.
Sales $11,171,000 $9,909,000 12.7
Oper. Income (EBIT) 907,000 773,000 17.4
Net income 494,000 432,000a 14.6
Per share (diluted) 0.55 0.47 18.2
Average gross margin 32.4% 31.7%
SG&A expenses 22.3% 21.9%


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