Credit, core biz push Target in Q2
By Don Hogsett -- Home Textiles Today, 8/18/2003
MINNEAPOLIS — Propped up by its rapidly growing and vastly profitable credit card business, along with its core Target stores, Target Corp. pushed second-quarter profits up by 4.1 percent, to $358 million from $344 million last year, offsetting weakness in its Mervyn's and Marshall Field's units.
Sales at the retail giant rose by 8.7 percent, to $10.6 billion from $9.8 billion, with all of the top-line growth coming from either the core Target Stores or credit cards.
Providing the biggest lift to the bottom line, as usual, was the core Target business, where operating profits grew by 5.7 percent, to $749 million from $708 million last year. Target sales improved by 11.3 percent, to $9.5 billion from $8.5 billion, driven by continued expansion. But same-store sales grew at a relatively sluggish pace of 2.7 percent.
In another strong assist, operating profits at the growing credit card portfolio jumped up by 24.0 percent, to $160 million from $129 million last year. Sales in the credit card business surged by 22.9 percent, to $322 million from $262 million. Underlining the importance of the credit business to Target, even after expenses and writing off consumer bad debt, the company generated a profit of fifty cents for every dollar of credit sales.
And the company needed every one of those profit dollars from credit cards to offset continued weakness at its Mervyn's and department store units. Mervyn's profits sank by 46.1 percent, to $31 million from $59 million, while Marshall Field's earnings dropped by 30.6 percent, to $13 million from $18 million.
Sales suffered as well at Mervyn's and Marshall Field's. Sales at Mervyn's fell by 7.3 percent, to $821 million from $886 million, while same-store sales declined by 7.9 percent. Department store sales slipped by 3.4 percent, to $569 million from $589 million, and same-store sales dipped by 2.4 percent.
Taking a bite out of the bottom line, margins thinned out while costs climbed higher in Target's retailing business. Average gross margin narrowed by 30 basis points, or three-tenths of a percentage point, to 31.9 percent from 32.2 percent, due largely to continued rapid growth at Target, the company's lowest-margin division.
Operating costs climbed by 20 basis points, or two-tenths of a percentage point, to 23.2 percent from 23.0 percent a year ago.
| 2003 | 2002 | % change | |
| Target | |||
| Sales | $9,458,000 | $8,499,000 | 11.3% |
| Same-store sales | — | — | 2.7 |
| Pre-tax profit | 749,000 | 708,000 | 5.7 |
| Mervyn's | |||
| Sales | 821,000 | 886,000 | -7.3 |
| Same-store sales | — | — | -7.9 |
| Pre-tax profit | 31,000 | 59,000 | -46.1 |
| Marshall Field's | |||
| Sales | 569,000 | 589,000 | -3.4 |
| Same-store sales | — | — | -2.4 |
| Pre-tax profits | 13,000 | 18,000 | -30.6 |
| Credit cards | |||
| Sales | 322,000 | 262,000 | 22.9 |
| Pre-tax profit | 160,000 | 129,000 | 24.0 |
| Qtr. 8/2 (x000) | 2003 | 2002 | % chg |
| Sales | $10,642,000 | $9,791,000 | 8.7 |
| Oper. income (EBIT) | 734,000 | 713,000 | 2.9 |
| Net income | 358,000 | 344,000 | 4.1 |
| Per share (diluted) | 0.39 | 0.38 | 3.5 |
| Average gross margin | 31.9% | 32.2% | — |
| SG&A expenses | 23.2% | 23.0% | — |
| Six months | |||
| Sales | 20,625,000 | 19,127,000 | 7.8 |
| Oper. income (EBIT) | 1,439,000 | 1,404,000 | 2.5 |
| Net income | 707,000 | 689,000 | 2.7 |
| Per share (diluted) | 0.77 | 0.75 | — |
| Average gross margin | 32.1% | 32.2% | — |
| SG&A expenses | 23.3% | 22.9% | — |
