NEW YORK (Reuters) - Target Corp (TGT.N) expects to post its best same-store sales in three years during the upcoming holiday season, sending its shares up as some analysts bet it will outpace larger rival Wal-Mart Stores Inc (WMT.N).
The discount chain benefited from the strong performance of its credit card business in its third quarter and believes it will lure more shoppers during the holidays with a new credit card program that offers 5 percent off all purchases and a bigger array of fresh food.
Target shares rose 3.8 percent on Wednesday. Wal-Mart said on Tuesday it expected to break a six-quarter streak of same-store sales declines in the United States during the holiday shopping season in the fourth quarter.
“Target has more catalysts behind it right now (for a) better holiday season than Wal-Mart,” Wall Street Strategies analyst Brian Sozzi said. He has a “neutral” rating on both discounters.
For a graphic on discounters, click on: r.reuters.com/fyk85q
Target’s U.S. sales have grown as consumers who feel more secure in their jobs trade up to its stores from rivals such as Wal-Mart for trendier clothing and home furnishings. Traffic at its stores rose more than 2 percent in the third quarter and the company forecast a same-store sales rise of 2 percent to 4 percent in the fourth quarter.
“While consumers remain conservative in their purchasing behavior, we’re encouraged by recent signs in the broader economy that may signal somewhat stronger and more stable sales in the coming months,” Chief Executive Gregg Steinhafel said on a call, citing a slightly improved job market.
Steinhafel expects the company’s merchandising plans and credit card discounts will drive fourth-quarter same-store sales to be the “best of any quarter in the last three years.”
Clarity on U.S. leadership following congressional elections this month and a potential decision to extend tax cuts put in place by former President George W. Bush could also help build consumer confidence in the future.
“We believe that consumers, regardless of their political views, are relieved to have the uncertainty surrounding recent elections behind them,” Steinhafel said.
Target is also betting on its store credit cards, or REDcards and has said shoppers who use them typically spend 50 percent more at its stores over the course of a year.
“The 5 percent reward program is a small part of their overall business, but I still think that it’s a pretty powerful initiative to drive the consumer into the store,” Sozzi said.
Many retail investors are betting on discounters this year as U.S. shoppers search for bargains in a slowly recovering U.S. economy.
On Wednesday, warehouse club operator BJ’s Wholesale Club Inc (BJ.N) posted a higher-than-expected quarterly profit and raised its forecast for the year, sending its shares up 2.4 percent.
The National Retail Federation has forecast a 2.3 percent increase in sales in November and December, which would be the best performance by U.S. retailers since 2006.
Target’s earnings for the third quarter that ended October 30, rose to $535 million, or 74 cents a share, from $436 million, or 58 cents a share, a year earlier.
Excluding a tax benefit, Thomson Reuters I/B/E/S calculated earnings at 68 cents a share, matching the analysts’ average estimate.
Target previously said sales rose 3 percent to $15.23 billion in the third quarter. Sales at stores open at least a year rose 1.6 percent.
Target has been boosting sales through an overhaul of its stores and adding fresh fruit and meats, as well as improving the merchandise and design of its electronics aisles.
In September, Chief Financial Officer Douglas Scovanner said that the food-section renovation will add 1 to 2 percentage points to same-store sales in 2011.
Reporting by Dhanya Skariachan and Brad Dorfman; editing by, Michele Gershberg, Lisa Von Ahn, Dave Zimmerman and Andre Grenon