Anne D'innocenzio, AP Retail Writer, Published November 21 2013
Shopper worries, Canada costs weigh on Target profit
Target, based in Minneapolis, also lowered its full-year earnings forecast Thursday. The results raise concerns about the key holiday season, which can account for anywhere from 20 to 40 percent of a retailer’s annual revenue.
Several other big retailers including Wal-Mart Stores Inc. and Kohl’s Corp. have cut their outlooks as their middle- and lower-income shoppers remain cautious in an uncertain economy.
Dollar Tree Inc., which sells goods for a dollar or less, on Thursday reported a 19 percent drop in third-quarter net income and offered a disappointing outlook for the holiday quarter.
Aside from the old worries like stagnant wages, shoppers are dealing with issues like a 2 percentage-point increase in the Social Security payroll tax since Jan. 1. Target also noted that a 16-day partial government shutdown in October also caused shoppers to pull back.
“We continue to see anxiety regarding the economy and the ability to stay within household budgets, particularly among lower and middle-income consumers,” Kathee Tesijee, Target’s executive vice president of merchandising, told investors during a conference call Thursday.
Given this tough environment, Target is touting prices on products in holiday TV ads, the first time it has done so in at least a decade.
For the three months that ended Nov. 2, Target earned $341 million, or 54 cents per share. That’s down from $637 million, or 96 cents per share, a year earlier.
Removing Canada-related expansion costs and other items, earnings were 84 cents per share. Analysts expected earnings of 64 cents per share for the Minneapolis company.
Revenue rose 2 percent to $17.26 billion from $16.93 billion. Wall Street expected $17.38 billion in revenue.
Sales at U.S. stores open at least a year rose 0.9 percent, near the low end of Target’s expectations. Tesijee noted that food and health care items continued to outpace the overall business. Electronics did well, but home and the fashion business posted small declines.
Target said shoppers continued to consolidate their trips, but spent more on each trip. But the discounter also noted that some shoppers were even cutting trips for fear it would tempt them to spend too much, a behavior it first saw during the recession.
Target expanded into Canada, its first foray outside the U.S. earlier this year, but it’s been challenging. The company is opening the stores in waves that should add up to about 124 stores, at locations once owned by Canadian retailer Zellers, by the end of the year.
Shares of Target fell 3.8 percent, or $2.56, to $63.92. The stock is up 12 percent for the year.