Target’s Profits Tumble On Soft Sales, Canada Expansion

Target’s CEO said Canadian prices are what they should be, despite the differing view of many Canadian customers.

Target Corporation announced Wednesday that its profits dropped about 13 percent in its second quarter on low sales and the underwhelming performance of its Canada operations.
 
Sales for Target stores open at least a year rose 1.2 percent, which was below the company’s prediction of a 2-to-3 percent increase.
 
President and CEO Gregg Steinhafel said in a Wednesday conference call with analysts that this year’s payroll tax increase continued to negatively affect spending, especially for lower income households.
 
Target announced that net earnings for the second quarter, which ended August 3, totaled $611 million, or $0.95 per share, down from $704 million, or $1.06 per share, during the same period in 2012. Earnings per share were $0.01 higher than what analysts polled by Thomson Reuters had expected.

 
Revenue, meanwhile, totaled $17.1 billion, up 4 percent from $16.5 billion in the second quarter of 2012. Second-quarter revenue fell short of analysts’ projections of $17.3 billion.
 
“Target’s second-quarter financial results benefited from disciplined execution of our strategy and strong expense control, offsetting softer-than-expected sales,” Steinhafel said in a statement. “For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures.”
 
Target has opened 68 Target stores in Canada since launching in the country in March. Expenses from its Canadian operation took about $0.21 cents per share from its quarterly profit, about $0.05 more than its original expectation. For the company’s full-year earnings, it expects Canadian expenses to cut $0.82 into its profits, $0.37 higher than originally forecast.
 
“In Canada, where we are only five months into our market launch, we continue to learn, adjust, and refine operations in our existing stores as we prepare to open another 56 stores by year-end,” Steinhafel said in a statement.
 
Steinhafel said during the conference call that sales in its health care, food, and other “basic commodities” categories have been much slower than expected in Canada. Target said $275 million of its quarterly revenue came from its Canada operations.
 
Target saw a backlash in March when customers complained of unexpectedly high prices at its three Canadian “pilot” stores. Last week, a customer satisfaction survey by Forum Research, Inc., suggested Canadians are disappointed with Target’s inventory shortage and continue to raise grievances with the prices.
 
Target stands by its pricing model, however. Steinhafel said the Canadian prices are “very competitive and right where they need to be when compared to competition at local markets” but there is a “gap in guest awareness of how low our prices really are.”
 
The company said one area where it did see healthy growth was in its digital sales, especially in mobile traffic from teens.
 
Looking forward, Target said it believes its full-year 2013 earnings will be on the low end of its guidance of $4.70 to $4.90—a range that was already adjusted from $4.85 to $5.05 in May.
 
Shares of Target’s stock were trading down about 3.2 percent at $65.81 during Wednesday afternoon trading.
 
Target is Minnesota’s second-largest public company based on revenue, which totaled about $72 billion for the fiscal year that ended February 2—up 5 percent from the prior year. It operates 1,856 stores—1,788 in the United States and 68 in Canada.