Target cuts full-year forecast after weak first quarter

Wed May 22, 2013 11:10am EDT

A woman pulls shopping carts through the aisle of a Target store on the shopping day dubbed ''Black Friday'' in Torrington, Connecticut November 25, 2011. REUTERS/Jessica Rinaldi

A woman pulls shopping carts through the aisle of a Target store on the shopping day dubbed ''Black Friday'' in Torrington, Connecticut November 25, 2011.

Credit: Reuters/Jessica Rinaldi

(Reuters) - Target Corp (TGT.N) cut its full-year profit forecast on Wednesday while turning in a weak first quarter with disappointing sales, as a chilly start to spring kept shoppers from buying seasonal items like clothing.

Target warned in April its first-quarter results would be weaker than anticipated, and its performance was even worse than revised Wall Street expectations due to the cool weather and the impact of higher payroll taxes on spending.

Shares of Target fell 3.6 percent to $68.70.

First-quarter sales at stores open at least a year fell 0.6 percent, while analysts targeted a 0.03 percent decline, according to Thomson Reuters I/B/E/S. Back in April, Target forecast same-store sales would be about flat versus its previous outlook of flat to up 2 percent.

"This is Target's weakest quarterly same-store sales performance since the Great Recession year of 2009," said Sandy Skrovan, U.S. research director at Planet Retail.

The last time Target's quarterly same-store sales fell was in the third quarter of 2009, when it posted a decline of 1.6 percent.

This year, shoppers held off buying spring merchandise such as clothing, fans and garden supplies as a chilly start to the season left them little reason to splurge.

"Across the board things were disappointing for a lot of retailers," Skrovan said.

The U.S. economy has been somewhat resilient. Core U.S. retail sales, which strip out automobiles, gasoline and building materials, rose 0.5 percent in April, after an upwardly revised 0.1 percent gain in March.

The end of a 2 percent payroll tax cut took effect on January 1 and the smaller paychecks have made some consumers less willing to spend. Still, declining gasoline prices have offset some of the drag on household income.

"While weather was a clear negative in (the first quarter), the revised view suggests that underlying pressure on moderate income consumer spending remains," said Bernstein Research analyst Colin McGranahan.

The pressure is not limited to Target. Last week, Wal-Mart Stores Inc (WMT.N) posted an unexpected 1.4 percent decline in same-store sales at its Walmart U.S. unit, while Kohl's Corp (KSS.N) posted a 1.9 percent decline in same-store sales. And on Wednesday, Lowe's Cos Inc (LOW.N) reported weaker-than-expected quarterly profit, hurt by the chilly weather as well as competition from larger rival Home Depot Inc (HD.N).

PROFIT DOWN

Target earned $498 million, or 77 cents per share, in the first quarter ended on May 4, compared with a profit of $697 million, or $1.04 per share, a year earlier.

Including the effects from opening Canadian stores, but excluding losses related to the early retirement of debt and gains from the sale of its credit card business, Target earned 82 cents per share. On that basis, analysts looked for 85 cents per share, according to Thomson Reuters I/B/E/S.

Total sales rose 1 percent to $16.71 billion, while analysts expected $16.78 billion in revenue.

The number of transactions in stores open at least a year fell 1.9 percent. Shoppers spent more overall and bought more items, but the selling price per unit was down, suggesting lower-priced items like groceries were selling well, Skrovan said.

Also, more shoppers took advantage of the 5 percent discount offered to Target's REDcard holders. It said 17.1 percent of sales in its stores were paid for with REDcard credit and debit cards, versus 11.6 percent a year ago.

Target said its first 24 Canadian stores, opened in March, generated $86 million in sales in the quarter. The company, which plans to have 124 stores in Canada by the end of the year, said costs related to the Canadian launch reduced earnings by 24 cents per share in the first quarter.

Target now expects adjusted earnings of $4.70 to $4.90 per share this year, down from its April forecast of $4.85 to $5.05.

(Reporting by Jessica Wohl in Chicago; Editing by Jeffrey Benkoe)

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Comments (5)
Crash866 wrote:
Weak sales in the first quarter? Thought the economy was fixed and consumer confidence was way up? I hear they are saying the long winter affected clothing sales…spin spin spin….

May 22, 2013 10:15am EDT  --  Report as abuse
jrj906202 wrote:
Still haven’t figured out Target.Everyday high prices.They run ads with no real deals.Here in the center of So California,Walmarts have tons of customers and Target stores look deserted.Maybe it’s different,in other areas of the country.

May 22, 2013 12:13pm EDT  --  Report as abuse
dareconomics wrote:
Target, Kohl’s and Walmart have all reported declines in same store sales for the 1st quarter. The retailing titans are quick to blame the weather over the actual reason, a huge social security tax increase for workers. Why would they spin the results this way? Weather can improve, but smaller paychecks are a permanent part of the new normal. The companies are attempting to persuade investors that poor sales are temporary, but they aren’t buying it as the stocks underperform the market.

Full post with charts, images and links:

http://dareconomics.wordpress.com/2013/05/22/around-the-globe-05-22-2013/

May 22, 2013 12:55pm EDT  --  Report as abuse
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