Target: Home shows signs of life in strong 1Q

-- Home Textiles Today, 5/19/2010 9:54:00 AM

Minneapolis – Target’s customer is starting to shop for apparel and home again, although the retailer expects spending patterns in the coming months to remain volatile.

While unemployment rates remain a concern, “a much larger portion of our guests did not feel the impact” of job losses, evp of merchandising Kathy Tesija told analysts during the company’s quarterly conference call today. Core customers paid off their debts and created budgets in response to the economic downturn, she said.

“Many have begun to indulge in small ways. We are seeing these trends particularly in home and apparel,” she added.

The stagnant real estate market is prompting Target customers to freshen up their bedrooms and bathrooms with new towels and sheets, she said.

In terms of broader initiatives for the year, Target is accelerating its P Fresh store remodel program and expanding the makeover beyond food to include home, beauty, electronics, video games and shoes. The company will complete 240 remodels this year and by the end of the third quarter will have revamped 450 stores. Target will open just 10 net new stores this year, including its first Manhattan store in July. The retailer remodeled 96 stores last year.

Chairman, president and ceo Gregg Steinhafel characterized the current economic environment as “somewhat unstable” and “fragile.” He predicted: “There’s going to be good months; there’s going to be bad months.”

Still, cfo Doug Scovanner deemed First Call projections for Targets earnings per share “reasonable.” First Call is projecting EPS of 91 cents in the second quarter.

For the first quarter ended May 2, earnings rose 28.5% to $671 million, or 90 cents per share. Retail sales increased 5.5% to $15.2 billion, with comps up 2.8%.

Gross margin rate was 31.3 percent, up from 30.8%.