Cards get credit for Target profit in Q1

By Don Hogsett -- Home Textiles Today, 5/19/2003 12:00:00 AM

MINNEAPOLIS —

Lifted almost entirely by continued strength in its growing credit card business, first-quarter profits at Target Corp. inched up by 1.3 percent, to $349 million from $345 million last year.

Sales at the company's diversified retail operations grew by 6.9 percent, to $10.0 billion from $9.3 billion last year, with the core Target discount stores contributing all of the growth and offsetting chronic weakness at Mervyn's and Marshall Field's. Same-store sales slipped by 0.1 percent. Same-store sales at Target stores, faltering in a soft economy, inched up just 1.1 percent, while same-store sales fell by 7.3 percent at Mervyn's and by 4.9 percent at Marshall Field's.

The relatively new credit business kicked in another $339 million in sales, up more than a third, by 34.5 percent, from $258 million the preceding year. Underlining the huge importance to Target of its credit card business, that operation contributed $151 million in pre-tax profits during the quarter, generating more than $0.44 in profit for every dollar of sales, even factoring $130 million in bad debt expense as cash-strapped consumers stopped paying their credit card bills.

Looked at another way, the credit card business was just 3.3 percent of company sales during the period, but contributed more than 16 percent of all of its profits.

Average gross margin held relatively steady during the period, easing off just 10 basis points, to 32.2 percent from 32.3 percent a year ago. But putting some pressure on the bottom line, costs climbed higher by 50 basis points, or half a percentage point, to 23.2 percent from 22.8 percent. Getting a lift from the stronger sales, operating profits advanced by 2.0 percent, to $705 million from $691 million.

Target Corp.