NEW YORK — Target Corp.’s investment in its Canadian debut this year and weaker-than-expected Christmas sales caused the company’s net income to fall 2 percent in the fourth quarter of last year.
But the second-largest discounter in the U.S. said its foray into Canada, its policy of matching competitors’ prices, and new designer lines will help its business this year.
“We believe that we are well positioned to succeed even in this uncertain environment, said Chief Executive Officer Gregg Steinhafel said in a call with investors.
The retailer, known for its inexpensive but trendy merchandise, pulled out all the stops to draw in cautious shoppers during the Christmas-shopping season, which runs from November through December.
It launched a line of gifts created by 24 high-profile designers in partnership with luxury department store Neiman Marcus and offered to match prices of online competitors such as Amazon.com, Walmart.com, Bestbuy.com and Toysrus.com.
But the initiatives did not spur customers to buy more during the period, a time when retailers can make up as much as 40 percent of their annual revenue. Indeed, Target noted that sales “barbelled,” meaning that they were strong around Black Friday, the busy shopping day after Thanksgiving, and the days before and after Christmas, but not in between.
Overall, Target’s number of transactions fell 1 percent during the quarter, although the amount spent per transaction rose 1.4 percent. The company said its gross margin - the percentage of each dollar in revenue made that a company actually keeps - declined during the quarter because of holiday markdowns.
Edward Jones analyst Brian Yarbrough said the problem during the holidays was seasonal merchandise that didn’t sell during a slow December. But overall it was a decent report, he said.
“Results were in line, and forward guidance was pretty solid,” he said.
Many had wondered how Target would do now that consumers are being squeezed by the end of a 2 percentage-point reduction in Social Security payroll tax last month. Burger King and Wal-Mart have already noticed a pullback caused by the change in the tax.
Steinhafel did not mention an effect in the fourth quarter but said the payroll tax change was one of several challenges that are giving the company a “tempered” view of revenue in 2013.
“While there are some encouraging signs in the housing market, volatility in consumer confidence, the payroll-tax increase and rise in the price of gas all present incremental head winds,” Steinhafel said Wednesday in a call with analysts.
For now, Target, which has 1,778 stores across the U.S., is focusing on its move into Canada. The company plans to open 24 Canadianstores by early April, one of five waves that should add up to 124 stores open before the end of the year. In addition, the chain plans to open 15 to 20 new stores in the U.S. It is the most new stores the company has opened in one year in its history.
“This is a big investment; people are going to be anxious to see how those are trending,” said Yarbrough, the Edward Jones analyst.
For the three months ending Feb. 2, Target earned $961 million, or $1.47 per share, for the period ended Feb. 2. That’s down from $981 million, or $1.45 per share, a year earlier.
Removing costs related to its investment in Canada stores and interest expense, earnings were $1.65 per share. Analysts expected earningsof $1.47 per share, on average, according to research firm FactSet, and some may have included the Canadian expense in their projections. Target had forecast adjusted earnings between $1.64 and $1.74 per share.
Revenue climbed 7 percent to $22.73 billion from $21.29 billion. This met Wall Street’s expectations.
During the quarter, revenue at stores open at least a year edged up 0.4 percent. This figure is a key indicator of a retailer’s health because it excludes results from stores recently opened or closed.
For the full year, the Minneapolis company earned $3 billion, or $4.52 per share. A year earlier it earned $2.93 billion, or $4.28 per share. Adjusted earnings were $4.76 per share. Annual revenue increased 5 percent to $71.96 billion from $68.47 billion.
Target’s outlook for 2013 was brighter. The chain foresees first-quarter adjusted earnings of $1.10 to $1.20 per share. Analysts predict earnings of $1.05 per share. It expects revenue in stores open at least one year to be flat to up 2 percent.
The chain’s fiscal-2013 outlook is for adjusted earnings between $4.85 and $5.05 per share. Wall Street expects earnings of $4.87 per share.
In a call with investors, Chief Financial Officer John Mulligan said he expects revenue in stores open at least one year to be in line with the current year’s 2.7 percent rise.
Target’s shares fell 93 cents, or 1.5 percent, to close Wednesday at $63.12.
Business, Pages 25 on 02/28/2013