Target's earnings on point Retail chain Target posted earnings this week that surprised analysts, driving shares higher.

U.S. retailers were preparing for the worst this past holiday season. With consumer confidence ebbing and flowing last year amid market volatility and a tepid labor economy, retailers across the nation aggressively slashed prices in an effort to attract shoppers to their brick and mortar stores.

Economists and industry forecasters were bearish on the overall holiday shopping season, with discount chains significantly impacted by a retrenchment in consumer spending. Target, which competes against Wal-Mart and other low-cost brands, endeavored to increase store traffic through its continued use of sales and discount specials. With the release of its better-than-expected earnings report on Thursday, it seems its approach paid off.

Target posted net earnings in its last fiscal quarter of $1.03 billion. That figure was up from the $936 million the company reported in the same period the year prior. Moreover, Target's earnings per share jumped 17 percent from last year, while its full-year earnings per share also rose 21 percent.

The Minnesota-based retailer instituted a number of cost reduction measures as a means of offsetting its aggressive discounting policy. Enhanced supply chain management and strategic sourcing further improved efficiency. The company said sales climbed 2.8 percent in the last quarter to $20.3 billion, and its comparable-store sales – which experts assert is a true indicator of a retailer's overall success – rose 2.4 percent.

Target's retail segment earnings before interest expense and income taxes (EBIT) increased 3.1 percent to $1.608 billion. The retailer did post a decline in its quarterly gross margin rate, a reflection of the hit it took from offering steep discounts. Target reported a gross margin rate of 28.7 percent in the quarter, representing a slight drop from the 29.1 percent rate logged the year prior.

Nevertheless, Target chief executive Gregg Steinhafel said that the company was pleased with its latest quarterly performance, especially considering the circumstances under which it is operating.

"We're very pleased with our fourth quarter and full-year 2010 financial results, which reflect strong performance in both of our business segments," he said in a statement. "In 2011, we will continue to focus on driving sales and traffic and providing an enhanced shopping experience through key strategic initiatives that include our ambitious remodel program, 5 percent REDcard Rewards and the launch of our new platform. Beyond 2011, we plan to expand our store footprint in new ways, opening our first City Target stores in 2012."

Target surpassed analysts' expectation, according to Reuters, but an uncertain economic climate is fueling concern about future earnings. Target and other low-priced retailers that dropped prices to attract shoppers will not be able to continue to offer such exceedingly steep discounts, as their operating margins would continue to decline.

U.S. retail chains are carefully eying new economic reports as they devise new ways to draw consumers to their stores. Many such businesses are expanding their online presence, a move they hope will aid in business cost reduction initiatives and fuel sales.

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