NEW YORK — Target Corp. reported a 11 percent gain in fourth-quarter profit, boosted by an improving credit card business and solid holiday sales.
But Wall Street analysts expressed concern that its expansion into food and its generous 5 percent discount offer for those paying with its store-brand credit and debit cards are eating away at the retailer's' profit margins.
The discounter on Thursday reported net income of $1.03 billion, or $1.45 per share for the three months ended Jan. 29. That compares with $936 million, or $1.24 per share, in the same period last year.
The results included an income tax benefit of 7 cents.
Total revenue rose 2.4 percent to $20.66 billion. Revenue at stores opened at least a year also rose 2.4 percent.
Analysts were expecting $1.39 per share on revenue of $20.28 billion.
Target shares rose $1.21, or 2.4 percent, to $51.47 in morning trading.
Target, based in Minneapolis, had struggled with weak sales during the early part of the recession but has seen a rebound since late 2009. The retailer's expanded food selection has helped bring in more customers.
Also helping customer counts is its discount offer, launched last October, for those paying with its branded or debit card. The discount can be applied to all merchandise, including food, which already carries thin profit margins.
During the quarter, Target's gross margin rate slipped to 28.7 percent from 29.1 percent.
Target should probably have some restrictions on the offer, Wall Street Strategies analyst Brian Sozzi said, instead of having it be applied across the store.
"I see a building pipeline of margin pressures," he said.
Target reiterated its plans to open anywhere from 100 to 150 stores in Canada in 2013 and 2014, and is opening its first batch of smaller stores targeted at urban markets in 2012.
The discounter said that during the latest quarter the average customer's purchase rose only 0.8 percent but more customers came into its stores, fueling a 1.6 percent increase in transactions. Selling price per item fell 2.7 percent.
Within its credit card segment, profit increased to $151 million, compared with $39 million in the year-ago period, as bad debt expense declined to $83 million, from $284 million in the same period last year.
Target's results stand in stark comparison to those of Wal-Mart Stores Inc. For the past year, Wal-Mart has seen fewer customers coming in the doors as they shop at other rivals like Target.
Wal-Mart reported on Tuesday a 27 percent increase in profit, but posted a 1.8 percent drop in revenue at stores opened a least a year at its namesake U.S. business, which accounts for nearly two-thirds of its revenue. That key revenue measure has declined for seven consecutive quarters.