Target beats estimates; stock jumps

NEW YORK (CNNMoney.com) -- Target Corp. on Wednesday reported first-quarter profits that beat estimates as price-conscious shoppers continue to prefer its discount stores over that of key rival Wal-Mart.

The Minneapolis-based No. 2 discounter, after Wal-Mart (Charts, Fortune 500), posted earnings of $651 million, or 75 cents a share, compared with $554 million, or 63 cents a share a year ago.

Sales for the quarter rose 9.2 percent to $14 billion, from $12.8 billion from the same period last year

Analysts had expected Target (Charts, Fortune 500) to post earnings of 71 cents a share on sales of $14.1 billion, according to earnings tracker First Call. The company attributed the slight sales miss to "unseasonably cold weather," which company executives said dampened store traffic in the first two weeks of April.

Additionally, Target said its credit card business contributed $143 million to earnings before taxes, an increase of $25 million, or 20.6 percent, from the same period in 2006.

Investors rewarded Target's outlook by boosting the stock more than 4 percent in morning trading on the New York Stock Exchange.

Target CEO Bob Ulrich told analysts Wednesday that he currently doesn't see any "near-term economic consideration" that could negatively impact the company's business in the months ahead.

Ulrich was alluding to growing concerns that record-high gas prices combined with a housing slump is squeezing the spending ability of consumers, especially those at the low-end of the income strata.

This is significant because consumer spending fuels two-thirds of the nation's economic activity.

To that end, Target's rival Wal-Mart, the world's largest retailer, last week reported flat profits for its first quarter and warned of more sales softness in the months ahead as surging gas prices continue to take a toll on its mostly paycheck-to-paycheck shoppers.

Maybe that's not the scenario yet at Target stores. One reason for that is because the retailer, best-known for offering exclusive yet affordable designer clothing and home products from such names as Isaac Mizrahi and Patrick Robinson, attracts richer shoppers than Wal-Mart who may not immediately feel the pinch of gas price swings on their wallets.

"We continue to be optimistic about our plan and performance in 2007," Ulrich said during a conference call to discuss the company's results. Target reiterated its full-year earnings estimate of $3.60 a share, which is in-line with analysts' current expectations.

The call was monitored via Web cast in New York.

Target's sales at stores open at least a year - a key measure of retail performance known as same-store sales - increased 4.3 percent in the period. For May, Target expects same-store sales to rise between 5 to 7 percent but expects June sales to be below that range.

For the remainder of the year, Target expects to grow same-store sales in the mid single-digit range, Ulrich said.

Infant products, electronics, health and beauty, and pharmacy were the best performing areas for the retailer during the period while intimate apparel and seasonal items such as lawn and patio furniture and sporting goods didn't fare as well.

Ulrich said inventory levels in the first-quarter were at or slightly above last year's levels for the same period.

Competitor Costco (Charts, Fortune 500) is scheduled to deliver its earnings report May 31.