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Target beats estimates on credit cards


Shoppers exit a Target store with their purchases in Fairfax, Virginia, in this February 4, 2010 file photo. REUTERS/Stelios Varias/Files
Shoppers exit a Target store with their purchases in Fairfax, Virginia, in this February 4, 2010 file photo. REUTERS/Stelios Varias/Files

By Jessica Wohl

CHICAGO (Reuters) - Target Corp <TGT.N> posted a bigger-than-expected rise in quarterly profit on Wednesday, as soaring profitability in its credit card business mitigated the impact of some sluggish sales at its stores.

Shoppers visited the discount chain for food and other basics, but spent cautiously. Sales of discretionary goods like apparel have been under pressure as shoppers digest higher costs for food, gasoline and other essentials.

Shares of Target retreated from premarket gains and were down 3 cents to $50.75 with about an hour to go before the market opens.

Target has been adding fresh groceries to more of its stores and signing up more shoppers for its credit cards. But groceries carry lower margins than other parts of the store and the credit cards' 5 percent discount further reduces margins.

Still, those initiatives have led to more visits and sales, even as shoppers "remain cautious in their spending," said Chief Executive Officer Gregg Steinhafel.

Target earned $689 million, or 99 cents per share, in the first quarter ended on April 30, up from $671 million, or 90 cents per share, a year earlier. Analysts, on average, expected it to earn 94 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 2.8 percent to $15.58 billion, with sales at stores open at least a year up 2 percent, the company said earlier this month. Total revenue, including credit card revenue, rose 2.2 percent to $15.94 billion.

More shoppers are using the company's credit and debit cards, with 7.6 percent of sales in stores paid for with the cards in the quarter, up from 4.9 percent a year earlier.

Profit in the credit card business jumped nearly 75 percent to $194 million. Consumers' improving finances helped Target slash its bad debt expense to $12 million from $197 million a year earlier.

Credit card average receivables decreased 14.4 percent to $6.5 billion, and those directly funded by Target rose 6 percent to $2.5 billion. Target said in January that it wants to sell its credit card receivables.

(Reporting by Jessica Wohl; Editing by Derek Caney, Dave Zimmerman)

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