TARGET TO EXPAND DELI OFFERINGS

MARK HAMSTRA

MINNEAPOLIS - Target Corp. here said it planned to add more self-service deli items, "including soups, side salads, value-added meats and desserts," in its SuperTarget stores while it also continues to expand its food offerings in many of its traditional discount stores.

In a conference call with analysts discussing its results for the fourth quarter that ended Jan. 28, the company said it opened 22 new SuperTarget stores last year and was continuing to roll out its newest prototype - which includes more food offerings - for general merchandise stores. The company also is increasing its penetration of private-label offerings in the grocery aisles.

"We continue to enhance our grocery assortments to provide greater guest convenience and drive more frequent guest visits," said Gregg Steinhafel, president. He said the chain had rolled out the latest design to half of its stores by the end of last year and would make the changes in "a meaningful number" of additional locations this year.

In response to a question, Steinhafel said the company is seeing increased customer loyalty over time from the additional emphasis on consumables. Robert Ulrich, chairman and chief executive officer, added that the new prototypes are driving increased shopper frequency and higher tickets.

"We get a financial return from those right-size remodelings," he said.

However, Target also said it expected its historical gross-margin improvements to level off in 2006 relative to last year, in part because of pressure from lower margins in fast-growing categories like pharmacy and food.

The company also said that a move to self-distribution for food was still "a couple of years" away. It is currently supplied by Supervalu, also based in Minneapolis.

Target posted a 13.7% increase in net income for the fourth quarter, to $939 million, compared with year-ago results, on an 11.5% increase in sales, to $16.9 billion. For the year, the company reported net income of $2.4 billion, a decline of 24.7%, on a sales gain of 12.3%, to $52.6 billion. Income from continuing operations for the year was up 27.7%.

Comparable-store sales were up 4.2% for the fourth quarter and 5.6% for the year.