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Mae Anderson, Published February 24 2009

Target fourth-quarter profit falls 41 percent amid downturn

NEW YORK (AP) – Target Corp. said Tuesday its fourth-quarter profit fell 41 percent, hurt by the consumer spending slowdown, and said it will expand food offerings and bolster its private-label brands.

Discounters, particularly Target’s chief rival, Wal-Mart Stores Inc., have benefited from consumers switching to cheaper stores and focusing on necessities. But at Target, where more than 40 percent of revenue comes from non-essentials such as funky jeans and quilts, the cheap-chic formula has become a drag as shoppers fixate on the lowest prices and forego the extras, no matter how reasonably priced.

Target said it is giving more shelf space in new and remodeled stores to food, household and health care and beauty products and will ensure customers know it offers low prices for these items.

Kathryn A. Tesija, executive vice president of merchandising, said in a call with analysts that while many of Target’s items are priced within 2 percentage points of Wal-Mart’s, “guest perceptions do not reflect this reality.” To correct that, Tesija said, Target will focus more on price in in-store displays and circulars.

The Minneapolis-based retailer reported that its earnings fell to $609 mil-lion, or 81 cents per share, in the quarter ended Jan. 31. It earned $1.03 billion, or $1.23 per share, a year earlier. Analysts polled by Thomson Reuters, on aver-age, expected earnings of 83 cents per share. Analyst estimates typically exclude one-time items.

Revenue in the quarter fell 1.6 percent to $19.02 billion, while analysts expected revenue of $19.56 billion. Sales at stores open at least a year, a comparison known as same-store sales considered a key retail industry measure, fell 5.9 percent, the com-pany said. Sales at new stores partially offset that.

The company expects same-store sales to fall in the mid-single-digits in 2009, including a mid-single-digit or double-digit rise in food and health care products and a double-digit decline in home, apparel and possibly lawn and patio products.

Tesija said that company will expand its private-label brands, including relaunching two in the spring - Circle, a children’s brand across all merchan-dise categories, and the Target home brand.

Rising delinquencies in Target’s credit-card busi-ness also are causing the company trouble, including a one-time, pretax loss of $135 million in the fourth quarter. Target took the loss because it had to add another $245 million to its reserve to cover delinquencies, but it expects delinquencies to stabilize as the year progresses.

For all of fiscal 2008, Target’s profit fell 22 percent to $2.21 billion, or $2.86 per share, while revenue for the year rose 2 percent to $62.88 billion.

Analysts expect fiscal 2009 earnings of $2.55 per share.

Target did not give specific guidance, but Doug Scovanner, chief financial officer, said that in the first half of 2009 analyst expec-tations are “higher than the description that we laid out for our business,” but added things were less clear for the second half of the year.

Shares fell 66 cents, or 2.3 percent, to $27.77 in midday trading. The stock has traded between $25.60 and $59.55 during the past 52 weeks.

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