Target, BJ's Wholesale results beat the Street

By Nicole Maestri

SAN FRANCISCO (Reuters) - Target Corp reported a better-than-expected profit on Wednesday as the No. 2 U.S. discount retailer offset sluggish sales by keeping a tight control on inventory and expenses, while its credit card business was profitable.

The results showed some stability has returned to Target's business after the recession and crumbling housing market battered profits as shoppers stopped splurging on its trendy wares or making their Target credit card payments.

In the past year, it has slashed inventory, cut costs, set aside funds to cover bad credit card accounts, and has started to tout its discount prices to appeal to frugal shoppers.

Target, which is locked in a proxy battle with activist investor William Ackman, said its business is now "less negative" than it was, and it does not see the need to put aside more money to cover bad credit card accounts.

"The earnings release reaffirms our view that Target has reached a positive inflection point in its business -- both in the retail and credit card operations," wrote William Blair & Co analyst Mark Miller in a research note.

Miller said Target's results also suggest that the proxy contest with Ackman has "driven heightened management focus on driving near-term financial performance."

Target noted that demand for food was strong in the quarter, a trend also seen at BJ's Wholesale Club, which posted a higher-than-expected quarterly profit and raised its full-year earnings forecast.

Target is testing a new food format that will offer a larger selection of frozen foods and perishable items.