Target 4th-quarter profit drops 2% as store sales disappoint

Bloomberg NewsFebruary 27, 2013 

Target reported a 2 percent decline in fourth-quarter profit after the second-largest U.S. discount retailer had its worst holiday-season store sales performance in four years amid concern over higher taxes.

Net income in the quarter that ended Feb. 2 fell to $961 million from $981 million a year earlier, the Minneapolis-based company said in a statement. Profit per share rose 2 cents to $1.47 as the number of shares outstanding decreased. Analysts projected $1.48, the average of estimates compiled by Bloomberg.

Target and competitors such as Wal-Mart Stores are working to keep prices low and draw consumers with promotions amid an increase in Social Security taxes and delayed refunds. Target Chief Executive Officer Gregg Steinhafel struggled to increase sales during the holidays after a luxury goods line co-branded with Neiman Marcus flopped with shoppers.

Steinhafel said in the statement that there was “a highly promotional retail environment and continued consumer uncertainty” during the fourth quarter.

Gross margin, the percentage of sales left after subtracting the cost of goods sold, narrowed in the fourth quarter to 27.8 percent from 28.4 percent.

Sean Naughton, an analyst at Piper Jaffray Cos. in New York with an overweight rating on the shares, said in a note that the shrinking margin “was due to a more promotional holiday than originally anticipated.”

Target posted December same-store sales that were little changed and reported a gain of 0.4 percent for the fourth quarter, its worst performance for the period since 2008.

The retailer cut prices on the Neiman wares by designers including Tory Burch and Jason Wu by 50 percent before Christmas and then marked them down 70 percent after the holiday.

Wal-Mart, the world’s largest retailer, this month projected first-quarter profit that trailed analysts’ estimates and said comparable-store sales in the 13 weeks ending April 26 will be little changed because of slower sales in the first few weeks of the current period.

Target’s sales rose 6.8 percent to $22.7 billion in the fourth quarter, matching the average of analysts’ estimates. For the quarter, transactions declined 1 percent, the first drop since the second quarter of 2009, according to David Strasser, an analyst with Janney Montgomery Scott in New York.

Target also projected first-quarter profit that was higher than analysts’ estimates. Earnings per share will be $1.10 to $1.20 excluding some one-time items, Target said. Analysts projected $1.06, the average of estimates compiled by Bloomberg.

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