Target profit beats expectations; shares up

(Reuters) - TARGET (TGT.NY)Corp posted a higher-than-expected quarterly profit and raised its full-year forecast on Wednesday, as it won over shoppers with an expanded selection of food in many stores and discounts for its cardholders.

Shares of the U.S. discount chain rose 1.5 percent to $64.33 in early trading.

Target is testing new strategies, such as opening smaller city stores, as it tries to entice shoppers to visit more often. The company added a wider variety of fresh food to hundreds of stores and will sell a line of holiday goods with upscale department store Neiman Marcus Group Inc later this year.

Target is also spending as it gets ready to open its first Canadian stores next year.

But those expenses were a bit lower than anticipated, and the results benefited from that as well as higher-than-expected profitability in the company's credit card unit, said Janney analyst David Strasser, who has a "neutral" rating on Target stock.

Target said it was "very pleased" with the early results from its first three CityTargets, which opened in Chicago, Los Angeles and Seattle in late July. The stores are about two-thirds of the size of the company's typical locations and carry a limited selection of some goods.

Analysts see CityTarget as a blueprint for how Target plans to run stores in Canada, where its sites are smaller than its typical U.S. shops. Target plans to start opening Canadian stores in March or April, after taking over leases for Zellers stores from Hudson's Bay Co in 2011.

"While the initial response from shoppers has been positive, the success of this format will essentially depend on whether Target can make the economics of the model work," Stewart Samuel, a Vancouver, Canada-based senior analyst with food and grocery research firm IGD, said earlier this week.

Occupancy and operational costs are likely to be higher at CityTarget than at Target stores, he said, while customers' average spending per visit will be lower.

REDCARD USAGE RISES

The company's profit was unchanged at $704 million in the second quarter ended on July 28, while earnings per share rose to $1.06 from $1.03 a year earlier, when there was more outstanding stock.

The profit topped the analysts' average forecast of $1.01, according to Thomson Reuters I/B/E/S.

The company said costs for the Canada entry had trimmed earnings by about 9 cents per share.

The percentage of sales paid for with Target's REDcard credit and debit cards, which carry a 5 percent discount, rose to 12.8 percent from 8.7 percent a year earlier.

Target forecast third-quarter earnings per share of 69 cents to 79 cents. Analysts expect it to earn 76 cents.

For the year, Target now expects to earn $4.20 to $4.40 per share, up from its May forecast of $4.10 to $4.30.

Analysts are calling for a profit of $4.31 per share this year.

As previously reported, sales in the quarter rose 3.5 percent to $16.45 billion, while sales at stores open at least a year increased 3.1 percent.

(Reporting by Jessica Wohl in Chicago; Editing by Gerald E. McCormick and Lisa Von Ahn)

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