Target Corp. shares sawsawed between gains and losses early Wednesday after the discount retailer announced fiscal first-quarter earnings that exceeded expectations. The discount retailer also reiterated its outlook for the full year, but gave a downbeat view on second-quarter profits due to “softening sale trends.”

The net income for the three months ending April 29, 2009, fell from $1.01billion, or 2.16 per share, to $950m, or only $2.05 per share. Earnings per share adjusted to exclude nonrecurring items fell from $2.19 to $2.05, but still beat FactSet’s consensus estimate of $1.77.

The total revenue rose by 0.6%, to $25.32 Billion, exceeding the FactSet consensus estimate of $25.26 Billion. Same-store sales increased by 0.7%, surpassing the FactSet expectation for a 0.2% increase, and traffic grew by 0.9%.

The stock gained 0.9% before the market opened, but it has since swung between a loss as high as 3.6% and a gain as high as 2.4% following the announcement of results.

“We were clear-eyed when we entered the year about the challenges facing consumers, and we wanted to build on the confidence we have built with our guests,” stated Chief Executive Officer Brian Cornell. It’s required agility, and the ability of our multi-category business to flex as we focus on value and product categories that our guests are most in need of right now.

Gross margin increased to 27,4% from 26,7%, despite a 0.4% decline in cost of sales to $18,39 billion.

Inventory value fell by 6.5% sequentially and 16.4% compared to a year earlier, reaching $12.62 billion on April 29.

Cornell, CEO of the company, said: “We now expect shrink to reduce this year’s profit by more than 500 million dollars compared to last year.” While there are many possible causes of inventory shrinkage, theft and organized crime are becoming increasingly important.

Target has said that it is planning for various sales outcomes due to “softening trends” in first quarter.

The company anticipates that same-store sales will be in the low single-digit range for the second quarter. FactSet’s consensus was for an increase of 0.1%. The company expects adjusted EPS to be between $1.30 and $1.70 for the current quarter, which is below expectations of $1.95.

Target has reiterated that it expects to achieve a same-store growth rate of 0.7% for the entire year and a diluted EPS between $7.75 and $8.75. This compares to the FactSet consensus of same-store sales of 0.6% growth and adjusted EPS at $8.36.

The S&P 500 index SPX, -6.4% and Consumer Discretionary Select Sector exchange-traded funds XLY_ have both risen 7.0%.