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Strong gain in profit gives Target a cushion

By Chris Serres

McClatchy Newspapers

MINNEAPOLIS — Target Corp. reported its strongest profit gain in two years, quelling expectations that it would have to slash prices this holiday season to compete with Wal-Mart.

Target said third-quarter profit rose 16 percent to $506 million, beating analysts’ expectations, on stronger sales in baby and men’s clothing, toys, food and health care.

The results should help insulate Target from needing to match Wal-Mart’s aggressive discounting, analysts said. "Target is doing so well that it doesn’t need to play the deep discount game," said Britt Beemer, chairman of America’s Research Group, a consumer behavior research firm.

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On Tuesday, Wal-Mart promised "its most aggressive pricing strategy ever" for the holiday shopping season. Analysts say Wal-Mart has been forced to take that position because its attempts to cater to more upscale shoppers have not worked as well as the retailer had hoped.

On Tuesday, Wal-Mart said third-quarter sales at stores open at least a year rose 1.5 percent, the lowest gain since early 2005. Target, meanwhile, reported a same-store sales gain of 4.6 percent in the third quarter, and said it expects a similar increase in the fourth quarter.

Target investors did get one piece of bad news Tuesday.

Berkshire Hathaway Inc., the investment firm run by billionaire Warren Buffett, sold most of its holdings in Target Corp. in the third quarter, according to Dow Jones News Service. The firm disclosed last month that it owned 5.5 million shares of the Minneapolis discount retailer as of June 30, a stake valued at $268.8 million. Berkshire said Tuesday in a regulatory filing that it reduced its stake to 745,700 shares — about $41 million — as of Sept. 30.

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