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Target Net Up, Outlook Mixed

<CS:BOLD>NEW YORK -- Rounding off 2001 with an almost 20 percent bottom-line increase in the fourth quarter, Target Corp. is stitching together early strength in its high-margin spring apparel.<BR><BR>Net earnings surged 19.2 percent, to $658 million,...

NEW YORK — Rounding off 2001 with an almost 20 percent bottom-line increase in the fourth quarter, Target Corp. is stitching together early strength in its high-margin spring apparel.

Net earnings surged 19.2 percent, to $658 million, or 72 cents a diluted share, compared with $552 million, or 61 cents a year ago. The quarter was depressed slightly by a $5 million, or 1 cent a share, charge for the early extinguishment of debt. Before the charge, earnings per share beat analysts’ consensus estimates of 72 cents by a penny.

Bottom-line strength at the Target and Mervyn’s divisions was slightly offset by weaker results at Marshall Field’s.

Total revenues for the period ended Feb. 2 ramped up 7.4 percent, to $13.24 billion from $12.32 billion in the year-ago quarter. Comparable-store sales, adjusting for an extra week in the previous fiscal year, rose 4.6 percent.

However, a rather tepid outlook provided by Target executives on a conference call led Wall Street to punish shares of Target, driving the stock down $2, or 4.6 percent, to $41.90 Thursday on the New York Stock Exchange.

U.S. Bancorp Piper Jaffray analyst Jeffrey Klinefelter noted: “It appears that investors were spooked by headlines” that indicated earning estimates of $1.75 a share for 2002 “may have been too strong. I didn’t take anything away from the conference call that would indicate that current trends do not support at least that consensus estimate.”

On the call with analysts Thursday, Douglas Scovanner, executive vice president and chief financial officer, placed the company’s odds of beating that estimate above 50 percent. The firm does expect next fourth quarter, though, to be flat to slightly up compared with the robust 2001 fourth-quarter results.

The apparel front also produced good news at Target stores.

Going forward, Gregg Steinhafel, president of Target stores, noted that, while food and pharmacy continue to be stronger, “our apparel business is doing quite well. Initially, for this spring, there isn’t anything over the top in terms of new trends that are going to drive our apparel sales higher than our overall growth rate.” He expects “a good apparel season this spring.”

Klinefelter said: “It may be surprising to some people that apparel has been strong. It sounds like it’s actually trending well and what I’m hearing is that it’s trending a little ahead of plan.” Warmer weather in much of the country, he said, could be helping early spring sales.

The profit stampede in the fourth quarter outshined the year, which saw earnings increase 8.2 percent to $1.37 billion, or $1.50 a diluted share, from $1.26 billion, or $1.38, last year. In addition to the fourth-quarter’s charge, the year included a pretax charge of $67 million, or 5 cents a share, related to securitized accounts receivables.

Sales picked up an 8.1 percent increase, coming in at $39.89 billion compared with $36.9 billion last year. Comps perked up 2.7 percent for the year.