November 16, 2011 / 12:45 PM / in 6 years

Target blames Walmart layaway for toy sales slump

(Reuters) - Target Corp’s (TGT.N) toy business took a big hit from Wal-Mart Stores Inc (WMT.N) early in the U.S. holiday shopping season, as Walmart’s return to offering layaway seems to be gaining momentum even before Thanksgiving.

Comments from Target’s top executives, made after the chain posted a much better-than-expected third-quarter profit, showed that the chic discount chain may be suffering from its plan to wait until next week to unveil its Black Friday plans and largely stick to familiar strategies while others such as Walmart tweak their tried-and-true pitches.

Walmart, the largest retailer, brought back holiday layaway on toys and electronics in October after a five-year hiatus. It has been advertising a lot more, including releasing its Black Friday ad last week, and plans to start special sales earlier than ever, at 10 p.m. on Thanksgiving night.

“Toys is off to a slow start and I think that’s going to be a bit of an uphill climb for us this year, although we’re still optimistic about the rest of the fourth quarter,” Kathryn Tesija, Target’s executive vice president of merchandising, said during a conference call. “Walmart’s layaway program has certainly hurt us in November.”

Target is opening its stores at midnight the day after Thanksgiving, earlier than it has before, but does not plan to reveal its Black Friday specials until the day before Thanksgiving. [ID:nN1E7A8134] It is also offering its card holders free shipping online, hoping to woo shoppers away from sites such as Amazon.com Inc (AMZN.O).

Shares of Target, up as much as 3.4 percent earlier in the day, were up 1.3 percent in afternoon trading.

This year’s early promotional push has led some shoppers to buy. According to a new National Retail Federation survey, 51.4 percent of Americans had already started holiday shopping in early November, up from 48.9 percent last year.

Target said the early release of Black Friday deals by competitors has led people to do more comparison shopping.

The U.S. discount chain also indicated that this quarter’s profit may be better than Wall Street has been anticipating. It expects sales at existing stores to rise about 4 percent during the fourth quarter that ends in January, relatively in line with the past two quarters of this year.

It expects shoppers to spend cautiously this quarter.

Target, which had forecast a low-to-mid single-digit percentage rise in November same-store sales, said that so far results were in line with its expectations.

Still, the number of shoppers at Target is up, while traffic at Walmart U.S. stores continues to decline, albeit at a slower pace, as that company works on winning back patrons. On Tuesday, Wal-Mart’s profit came in just short of expectations.

( For a graphic on Target vs. Wal-Mart, click link.reuters.com/xuv94s )

QUARTER TOPPED EXPECTATIONS

    Target’s profit rose much more than expected, with strong retail margins and shoppers responding to its 5 percent discount for cardholders.

    The number of transactions at stores open at least a year rose just 0.3 percent, after increasing 0.5 percent in the second quarter, suggesting that expanded food departments and a limited-edition line of Missoni goods did little to lure more shoppers to the stores during the quarter.

    Target earned $555 million, or 82 cents per share, in the third quarter ended on October 29, up from $535 million, or 74 cents per share, a year earlier.

    The company had forecast earnings of 70 cents to 75 cents per share, and analysts on average were expecting 74 cents, according to Thomson Reuters I/B/E/S.

    Minneapolis-based Target has 1,767 U.S. stores and plans to open some in Canada starting in 2013. Excluding costs from the Canada entry, Target said it had earned 87 cents per share.

    Gross margin slipped to 30.5 percent from 30.6 percent, but was less of a decline than analysts expected.

    Third-quarter sales rose 5.4 percent to $16.05 billion. Same-store sales rose 4.3 percent. The average amount spent per transaction at those established stores rose 4.1 percent as shoppers bought more items and prices were higher.

    Target forecast fourth-quarter earnings of $1.43 to $1.53 per share, excluding certain items. Analysts were looking for a profit of $1.47 per share.

    Reporting by Jessica Wohl in Chicago; editing by John Wallace, Lisa Von Ahn, Dave Zimmerman and Gunna dickson

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