Target beats sales forecasts, sign strategy is working

U.S. retailer Target Corp reported a stronger-than-expected jump in fourth-quarter sales and profits and forecast modest growth this quarter in a sign that its online business strategy and focus on promoting select categories is working.

The company said it had enjoyed strong sales of apparel and products for children and babies, a reflection of its move to expand a few product lines in which it believes it can outsell the competition on quality and price.

Its online business contributed to a quarter of the growth in same-store sales, helped by waiving all shipping costs on orders during the Christmas holiday season.

Similar to other retailers lower fuel prices also helped, Chief Financial Officer John Mulligan told a media call.

Shares of Target were down 0.8 percent at $76.24.

Target will announce investments in focus areas at an analyst meeting on Tuesday as well as cost cuts to fund them, Mulligan said. He did not say whether it may cut jobs.

Target said comparable sales at stores open longer than a year rose 3.8 percent in the November-January quarter. That beat its forecast, unveiled just five weeks earlier when it announced an exit from the Canadian market, for a rise of 3 percent.

"No one was more surprised than me," Mulligan said. "Sales were incredibly strong in those last two weeks."

Target has gained back all of the customers lost in the wake of a damaging breach of consumer data that hurt sales during the holiday season in 2013 and then some, Mulligan said.

He also pointed to a 3.2 percent rise in store traffic.

Aiding the online business was the waiving of a $50 threshold on free shipping orders during the holidays. This week Target said it was halving that threshold to $25 in a bid to better compete with online leader Amazon.com and Wal-Mart Stores.

Adjusted earnings per share, which excludes items including a $5.1 billion loss related to the Canada exit, came to $1.50 in the fourth quarter, the most important for retailers because it includes Christmas. That was above the $1.43 to $1.47 per share range forecast by the company last month.

For the current quarter to end-April, Target forecast adjusted earnings per share of $0.95 to $1.05, up from $0.92 in the first quarter of 2014 and compared with the average analyst estimate of $1.04, according to Thomson Reuters I/B/E/S.