By  on August 12, 2005

NEW YORK — As Target Corp. reported better-than-expected second-quarter results, the retailer upped its fashion content for fall, looking to compete with specialty shops such as Banana Republic and Ann Taylor, but at lower prices.

Meanwhile, Kohl's Corp. said its bottom line bolted 27.4 percent on strong sales for the second quarter.

On Target's conference call, Gregg Steinhafel, president, said, "Our guests enjoy Target's innovative and affordably designed products and increasingly look to us to identify new trends, best new products and deliver the unexpected. As we move into the fall season, we are continuing to add excitements and build on our year-to-date momentum."

He said for apparel, the company is "expanding our wear-to-work assortment to include suit separates for both men and women, featuring fabrics, construction and finishing details on [par] with Banana Republic and Ann Taylor, but at half the price."

Kurt Barnard, of Barnard's Retail Reports, said, "For Target, this means that they are going more upscale, giving Gap [Banana Republic's parent] and Ann Taylor a run for their money. Target has declared war at a time when Gap and Ann [Taylor] are at their most vulnerable."

For the three months ended July 30, net income was $540 million, or 61 cents a diluted share, from $1.41 billion, or $1.53, in the same year-ago quarter. On a continuing operations basis, earnings last year were $360 million, or 39 cents. The company last year disposed of its Marshall Field's chain. Despite the steep decline in second-quarter profits, the company still managed to beat Wall Street's estimate of 59 cents a share. Revenues rose 13.6 percent to $11.99 billion from $10.56 billion, which included a 13.5 percent gain in sales to $11.67 billion from $10.28 billion. Comparable store sales rose 6.7 percent.

"Superior in-store execution and in-stock levels and great guest service" were the three areas Steinhafel highlighted as some of the reasons why Target delivered strong results during the quarter.

J. David Cumberland, analyst at Robert W. Baird & Co., wrote in a research note, "Comps drivers in the [second half of 2005] should include ongoing remodels, services [pharmacy, photo], merchandising initiatives [more consumables, and new lines in apparel, cosmetics, domestics, electronics, and home decor] and a higher proportion of young stores in the comp base. We continue to believe Target's differentiated, trend-based merchandising approach is well positioned to capitalize on demand for fashion-oriented content."After the market closed, Kohl's Corp. said its second-quarter net income was $187.2 million, or 54 cents a diluted share, which compares with $146.9 million, or 43 cents, in the same period last year as net sales increased 15.6 percent to $2.9 billion from $2.5 billion a year ago. Comps increased 5.1 percent during the quarter.

Larry Montgomery, Kohl's chairman and chief executive officer, said from here, the retailer will "continue to target comparable-store sales growth in the midsingle-digit range for the fall season. For the year, we continue to target earnings growth of approximately 20 percent over last year."

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