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Nov 19, 1:24 PM EST

Target's 3Q earnings rise 3.2 percent as it recovers from last year's data breach


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NEW YORK (AP) -- Target reported a 3.2 percent rise in its third-quarter profit and beat Wall Street expectations as shoppers spent more on beauty products, toys and back-to-school items.

The results, which marked its first increase in a key revenue measure in a year, shows how the company is successfully moving beyond a massive data breach disclosed a week before last Christmas. That sent customers fleeing for months and hurt sales and profits.

Shares rose almost 5 percent on the news in morning trading Wednesday.

The data theft, which compromised millions of credit and debit cards just one week before Christmas, was a major factor in the ousting of CEO Gregg Steinhafel in May. Former PepsiCo executive Brian Cornell took over in August, and he has the task of maintaining Target's momentum and reclaiming the retailer's image as a purveyor of cheap chic fashions and home decor.

Cornell must also salvage Target's botched entry into Canada in 2013, which has been a big drag on profits.

Target is still playing catch-up, particularly with Amazon.com, and has rolled out a service that allows people to order online and pick up goods at a store. It is also cutting shipping time by using its network of stores to ship directly to the homes of online shoppers.

Like other retailers catering to middle-income shoppers, Target is wrestling with a customer base that has not benefited from the country's economic recovery because wages have remained stagnant.

"Overall, we were pleased with the third-quarter performance," John Mulligan, Target's chief financial officer. But he added, "We recognize we still have a lot of work to do as we continue to heal the U.S. business."

Mulligan said that while low gas prices have left shoppers with more money to spend, it's hard to make the correlation with the data. Customers are still dealing with a lot of cross-currents, Mulligan said, so he believes shoppers will remain focused on deals.

Meanwhile, operations in Canada have improved ahead of the holiday season since Target made changes to its pricing and product assortment. Still, the company is not satisfied with the performance and Mulligan told reporters that it will assess its Canadian business after the fourth quarter.

Even before Cornell assumed the helm, Target had begun to reassess its operations, sprucing up its baby department and adding mannequins to its fashion areas. Cornell wants to double-down on a handful of areas like children's products, fashion and furniture. In a conference call with investors, Cornell stressed that it's not de-emphasizing food but will focus on offerings that are unique to Target. That will mean more organic and natural foods.

"We are stepping back and really listening to the guest," Cornell told investors.

Still, that's a change from a few years ago when Target aggressively expanded into groceries during the recession to increase traffic in its stores. Over the past eight years, fashion and home furnishings sales have dropped from a combined 47 percent to 36 percent of total sales. At the same time, food, pet supplies as well as household essentials rose from 30 percent to 46 percent of total sales, according to UBS retail analyst Michael Lasser.

Target has unveiled an aggressive plan to win its share of holiday sales this year. The company plans to open stores at 6 p.m. on Thanksgiving Day, two hours earlier than last year.

That's the same time that Wal-Mart plans to begin offering its door-buster deals.

Starting in late October, Target began offering free shipping on all items including $6 lipstick until Dec. 20. It's also expanding its offerings of exclusive fashions and other products.

But the results posted Wednesday show that Target has a good chance of winning back shoppers during the most important shopping period of the year.

Target, based in Minneapolis, reported earnings of 55 cents per share, or $352 million, for the three-month period ended Nov. 1. That compares with 54 cents per share, or $341 million, in the year ago period.

The results beat Wall Street expectations. The average estimate of analysts surveyed by Zacks Investment Research was for earnings of 47 cents per share.

Target's revenue rose 2.8 percent to $17.7 billion. Analysts expected $17.53 billion, according to Zacks.

Target posted a 1.2 percent gain in revenue at stores opened at least a year. That was better than Target's expected range of unchanged to up 1 percent.

Online sales increased 30 percent in the quarter.

Shares rose $4.95, or more than 7 percent, to $72.46 in afternoon trading Wednesday.

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