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Target's turnaround plan is off to a good start

Target reported a nearly 52 percent increase in its first-quarter profit on strong sales of fashion and baby items, evidence that its efforts to turn around its business are paying off. Is the retailer leaving a tumultuous few years behind? 

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The sign outside the Target store is seen in Arvada, Colorado in this January 10, 2014 file photo. Target reported better-than-expected Q1 earnings on May 20, 2015.

Rick Wilking/Retuers/File

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Target reported a nearly 52 percent increase in its first-quarter profit on strong sales of fashion and baby items, evidence that its efforts to turn around its business are paying off.

The retailer, based in Minneapolis, also boosted the bottom end of its annual profit outlook.

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Target Corp. is aiming to reinvent itself as a more nimble and innovative company and trying to reclaim its reputation as a cheap chic retailer under CEO Brian Cornell, who took the top job last year.

“We’re pleased with our first quarter traffic and sales, particularly in our signature categories, which drove better-than-expected profitability through improved gross margin and continued expense management,” Mr. Cornell said in a statement. “We’re encouraged to see early progress on our strategic priorities, including strong sales growth in Apparel, Home and Beauty, nearly 40 percent growth in digital sales, and positive traffic in both our stores and digital channels. We continue to benefit from strong execution by our stores team, who overcame weather challenges and West Coast port delays to deliver outstanding guest service in the first quarter.”

Under Cornell, the company ended its money-losing expansion into Canada. It also has made other cost-cutting moves, including eliminating 1,700 positions in the U.S. The company told investors in March that it plans to eliminate $2 billion in costs over the next two years and invest money into its online operations and other endeavors.

Target is also doubling down on a handful of areas like fashion, children's products and home furnishings. It's also reimagining its grocery area and wants to focus on organic, natural, gluten-free and locally produced food.

The moves come after Target lost its way during the Great Recession when it aggressively expanded into basic groceries. That helped drive traffic but diluted its cheap chic image. The company also was dragged down by its botched foray into Canada two years ago. And Target was behind other rivals in e-commerce services.

The company's first-quarter results show Target is seeing momentum.

Target said it earned $635 million, or 98 cents per share in the quarter ended May 2. That compares with $418 million, or 66 cents per share in the year-ago period.

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Revenue rose nearly 3 percent to $17.1 billion. Revenue at store opened at least year a year, marking the third consecutive period of gains.

The results surpassed Wall Street estimates. The average estimate of 14 analysts surveyed by Zacks Investment Research was for earnings of $1.03 per share. Zacks had forecast revenue of $17.08 billion.

The company said that it now expects earnings per share to be in the range of $4.50 to $4.65 for the fiscal year, up from the original forecast of $4.45 to $4.65 per share. Analysts were expecting $4.56 per share for the year, according to FactSet.

Target's stock rose a little more than 1 percent, or $1.08, to $79 in premarket trading Wednesday.