Target Profits Dip With Weak Holiday Sales, High Expenses

Target Profits Dip With Weak Holiday Sales, High Expenses

In addition, sales have been “softer than expected” so far in February, but the company believes its foray into Canada, policy of matching online competitors’ prices, and new designer lines will help business this year.

Target Corporation’s fourth-quarter profits dropped 2 percent as the retailer experienced weak holiday sales and recorded expenses related to its launch in Canada this year.
 
For the quarter that ended February 2, net earnings totaled $961 million, or $1.47 per share, down from $981 million, or $1.45 per share last year. Revenue for the quarter, meanwhile, rose 6.8 percent to $22.4 billion. Revenue at stores open at least a year—a key indicator of a retailer’s health—rose 0.4 percent.
 
The company plans to open 124 Canadian stores before the end of the year and 15 to 20 new U.S. stores—the most new stores the company has opened within a single year in its history.
 
Excluding one-time costs, including those related to the Canada expansion, earnings totaled $1.65 per share, in line with Target’s forecast of $1.64 to $1.74 per share. Analysts polled by Thomson Reuters predicted $1.48 per share, and while such projections generally do not include one-time expenses, some analysts reportedly might have included the Canadian expense in their projections.
 
For the full year, Target’s profits rose 2.4 percent to $3 billion; revenue increased 5 percent to $71.9 billion.
 
The holiday season represents a key period for retailers, which can make up to 40 percent of their annual revenue in November and December. But Target CEO Gregg Steinhafel told investors during a Wednesday conference call that sales were strong around Black Friday and in the days before and after Christmas, but not during the rest of the season.
 
“The U.S. economy is growing at a painfully slow rate and unemployment remains persistently high,” Steinhafel said during the earnings call. “While there are some encouraging signs in the housing market, volatility in consumer confidence, the payroll tax increase, and rise in the price of gas all present incremental headwinds.”
 
Target had launched several new efforts in an attempt to position itself for strong sales during the holidays, including partnering with luxury retailer Neiman Marcus to offer a limited holiday collection that debuted on December 1. But demand for the collection was weak and shelves remained well-stocked three weeks after the launch, prompting Target to mark down prices by up to 70 percent.
 
The company also offered a “holiday price match” program, through which it matched prices with online competitors, and it has since made the policy permanent in an attempt to compete with online retailers and combat “showrooming”—the practice of customers viewing products in stores only to buy them online at lower prices.
 
Company officials said during the call that sales have been “softer than expected” so far in February, but they believe that the price-matching policy, along with Target’s foray into Canada and new designer lines, will help business this year.

The company forecasts adjusted earnings of $4.85 to $5.05 per share this year, higher than the $4.76 it earned last year. It expects first-quarter earnings to be in the $1.10 to $1.20 per share range, compared to $1.11 per share earned during the same quarter a year earlier.
 
“We believe that we are well positioned to succeed, even in this uncertain environment,” Steinhafel said.
 
Target is Minnesota’s second-largest public company based on revenue. Shares of the company’s stock were trading down 1.5 percent at $63.12 on Wednesday afternoon.