NEW YORK -- Target Corp. reported a 29 percent increase in first-quarter net income, as its customers, feeling better about their finances, treated themselves to small indulgences like clothing that carried fat profit margins.

Rising sales also provided a sign that the retail chain is winning customers from competitors such as Wal-Mart Stores Inc., which reported its fourth straight quarter of declines in a key revenue measure Tuesday. Improvement in Target's credit-card business also boosted profits.

The company, based in Minneapolis, offered second-quarter and full-year profit outlooks in line with Wall Street expectations, but said a key sales measure is running below expectations so far in May. That followed a 2.8 percent gain in the latest quarter that marked the best performance in 10 quarters.

"Clearly, the economy and consumer sentiment have improved since the weakest point in 2009, but we believe that both are still somewhat unstable and fragile and will likely continue to experience occasional setbacks as the year progresses," amid a stubbornly high jobless rate, Chairman and CEO Gregg Steinhafel told investors during a conference call.

Still, Target officials offered a more positive picture of the financial shape of its customers than did Wal-Mart, whose main shoppers have less money and more limited access to financial services.

Wal-Mart told investors that its customers are having even more trouble stretching their dollars to the next payday. On the other hand, Target said that while many of its customers still feel the direct impact of job loss or other financial stress, a much larger portion weren't especially hurt by the recession. Instead, they became cautious in purchasing out of wariness rather than necessity.

"These guests paid off debt, created and stuck with budgets and now they are feeling optimistic," said Kathee Tesija, executive vice president of marketing.

That helped Target report net income of $671 million, or 90 cents per share, for the period. Total revenue rose 5 percent to $15.59 billion.

Steinhafel noted that the retail segment beat expectations as sales of discretionary items with high profit margins such as clothing and home decor were particularly strong. Target's gross profit margin increased to 31.3 percent in the first quarter, up from 30.8 percent in the year-ago period.

Target took a hit when the economy went into free fall because about 40 percent of its sales come from essentials such as groceries, as opposed to 60 percent at Wal-Mart.