Target Corp. is building some momentum going into the year-end shopping season.
The Minneapolis-based retailer said Wednesday that third-quarter profit rose 3.1 percent, beating analysts’ expectations as its sales in U.S. stores grew faster than Wal-Mart’s.
Comparable sales at U.S. stores rose 1.2 percent in the three months ended Nov. 1, which was slightly better than the company’s projection for flat-to-1-percent growth. Its bigger rival Wal-Mart reported a 0.5 percent gain for the same period.
Target shares closed Wednesday up $4.99, or 7.4 percent, at $72.50, the highest level of the year and within a dollar of the all-time high set in June 2013. In after-hours trading, the shares rose another 30 cents to $72.80.
“We’re encouraged that the pace of U.S. traffic continues to recover from a very challenging trend earlier in the year,” Brian Cornell, Target’s CEO, told investors on a conference call.
Target’s customer traffic improved to nearly the level it experienced before a data breach last December scared some shoppers away. The number of transactions in U.S. stores was 0.4 percent lower in the quarter than it was a year ago. It saw drops of more than 1 percent earlier in the year.
Cornell added that he expects to see much better performance in Target’s Canadian stores in the fourth quarter, when traffic will naturally pick up for the year-end shopping season. He said the company has been working to improve pricing, assortment and stocking of items, problems that led to disappointing sales and losses in Canada.
“The guest response to these changes, both in their shopping behavior and overall sentiment toward Target, will inform our perspective as we continue to assess our longer-term potential in Canada,” he said.
The Canadian stores continue to struggle, with sales below the company’s expectations and a $211 million loss in the quarter. Target has lost roughly $1.6 billion in Canada since its big expansion there last year.
Looking ahead in the U.S., Target forecast a 2 percent same-store sale increase in the fourth quarter, which would be its best performance in more than a year.
John Mulligan, Target’s chief financial officer, told reporters Wednesday morning he was pleased Target was able to drive better-than-expected sales while also pulling back on promotions in the quarter. He noted that the retailer had been especially promotional earlier in the year as it worked to “heal its business” after many challenges, including last year’s data breach.
He added that back-to-school and the end of October were strong periods for the company, and that categories such as cosmetics and toys performed well.
Digital sales were up 30 percent in the quarter. Target executives said they expect online sales to accelerate even faster during the year-end shopping season to grow nearly 40 percent, boosted in part by Target’s aggressive year-end-shopping-season promotion it launched in late October to offer free shipping on any-sized order. They said Target has seen a “meaningful” uptick in orders as a result of that deal.
The company earned $352 million in the August-October period, up from $341 million a year ago. That amounted to a profit of 55 cents a share, up 2.7 percent from 54 cents a year ago.
Adjusted for one-time gains and expenses, the company’s profit was 54 cents a share, down from 56 cents a share in the year-ago period but well above the 47 cents a share forecast by analysts. Target beat analysts’ forecast for the first time since the May-July period of last year.
Revenue rose 2.8 percent, to $17.7 billion. Analysts had forecast revenue of $17.5 billion.