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Target charges ahead of competition

Lifted by a rocket-hot holiday season in its core Target Stores, and continued earnings growth in its new credit card business, Target Corp. said profits in the Christmas quarter raced ahead by 21.1 percent — more than twice as fast as rival Wal-Mart's 8.5 percent gain — to $832 million from $688 million last year.

Sales at the diversified retailer grew by 11 percent, to $15.2 billion from $13.7 billion last year, driven by continued rapid expansion in its core Target franchise. But the acid-test of same-store sales grew at a more subdued pace of 2.9 percent, with a strong 6.1 percent gain at Target Stores held in check by continued weakness at the Mervyn's and Marshall Field's divisions.

Providing the biggest lift to the bottom line, as it has in the recent past, was Target's growing and hugely profitable credit card business, which generated a pre-tax profit of $168 million, up 12 percent from $150 million last year. Putting it into perspective, credit cards made substantially more money for the parent company than Mervyn's and Marshall Field's combined — $168 million versus $133 million during the fourth quarter. Profits in the credit card business shot up sharply higher than sales, which grew at a sluggish pace of 1.8 percent, to $335 million from $329 million a year ago.

Underlining the importance of the credit card business to Target, even after expenses and writing off consumer bad debt, the company generated a profit of slightly more than 50 cents for every dollar that consumers charged using Target cards, vastly more than the retail units make selling merchandise.

On the retail side of the ledger, Target Stores once again carried Mervyn's and Marshall Field's. Target sales rose by 12.6 percent, to $13.4 billion from $11.9 billion last year. And profits shot up by 18.5 percent, to $1.4 billion from $1.2 billion.

Mervyn's remained a drag to both top and bottom lines, with sales declining by 4.1 percent, to $1.1 billion from $1.2 billion; and profits off by 0.3 percent, to $74 million.

But providing a lift to the bottom line, helped by a strong holiday performance, the Marshall Field's department store business pushed profits up by 15.6 percent, to $59 million from $51 million last year, even though sales were off. Department store sales slipped by 1.2 percent, to $791 million from $800 million a year ago.

Target Corp.

Qtr. 1/31 (x000) 2003 2002 % chg
a-Fourth-quarter results include $357 million in credit revenues, up 1.9 percent from $350 million last year; and credit expense of $220 million, down 5.4 percent from $233 million in the same period a year ago.
b-12-month results include $1.4 billion in credit revenues, up 15.6 percent form $1.2 billion a year ago; and credit expense of $838 million, up 9.6 percent from $765 million in 2002.
Sales $15,214,000 $13,711,000 11.0
Oper. income (EBIT) 1,675,000 1,473,000 13.7
Net income 832,000a 688,000a 21.1
Per share (diluted) 0.91 0.75 20.7
Average gross margin 31.6% 30.3%
SG&A expenses 20.6% 19.5%
12 months 2003 2002 % chg
Sales 46,781,000 42,722,000 9.5
Oper. income (EBIT) 4,295,000 4,046,000 6.2
Net income 1,841,000b 1,654,000b 11.4
Per share (diluted) 2.01 1.81 11.0
Average gross margin 32.0% 31.5%
SG&A expenses 22.9% 22.0%


Fourth quarter segment results

Target 2003 2002 % change
Sales $13,431,000 $11,930,000 12.6
Same-store sales -- -- 6.1
Pre-tax profit 1,380,000 1,165,000 18.5
Mervyn's 2003 2002 % change
Sales 1,103,000 1,150,000 -4.1
Same-store sales -- -- -4.7
Pre-tax profits 74,000 75,000 -0.3
Marshall Field's 2003 2002 % change
Sales 791,000 800.000 -1.2
Same-store sales -- -- 0.5
Pre-tax profit 59,000 51,000 15.6
Credit cards 2003 2002 % change
Sales 335,000 329,000 1.8
Pre-tax profit 168,000 150,000 12.0


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