NEW YORK - Target Corp. reported a 29 percent drop in first-quarter profit as unusually cool spring weather and financial pressures chilled customers’ appetite for spending.
The company, based in Minneapolis, also Wednesday cut its annual profit outlook, sending its stock down.
Target is the latest in a string of companies including rival Wal-Mart Stores Inc. that say bad weather and financial pressure have squeezed business.
While low temperatures were a big factor in depressing sales of spring clothing and other seasonal goods, Target said that a yo-yo economic recovery has continued to make shoppers stick to shopping lists and plan their spending.
“We remain cautiously optimistic about both the macroeconomic environment and consumer behavior,” Gregg Steinhafel, chairman, president and chief executive, told investors in a call after the earnings report. “Both of these business drivers continue to reflect slow, uneven growth and ongoing cross-current of positive and negative indicators, just as they have for the past few years.”
While the housing market is showing signs of recovery and claims for unemployment insurance have been declining, shoppers, particularly younger customers, are still facing a weak job market, Steinhafel said.
A big hurdle for many low-price retailers has been tax changes. The Jan. 1 end of a temporary payroll-tax reduction of 2 percentage points means that take-home pay for a household earning $50,000 a year has been sliced by $1,000.
Target said Wednesday that three-quarters of its customers surveyed were aware of this year’s payroll-tax increase. Among those, a majority have noticed the effect of the tax increase on their paychecks and indicate it’s altered their spending habits.
Target said it earned $498 million, or 77 cents per share, for the three months ended May 4. That compares with $697 million, or $1.04 per share, a year earlier.
Excluding items related to its Canadian expansion and retirement of certain debt, the company earned $1.05 per share.
Sales rose 1 percent to $16.71 billion.
Analysts had expected earnings of 95 cents per share on revenue of $16.82 billion.
Target Corp. shares fell $2.86, or 4 percent, to close at $68.40.
Revenue at stores open at least a year slipped 0.6 percent as the number of transactions fell 1.9 percent. That’s considered an important measure of retail performance because it strips out the effect of stores that open or close during the year.
Target says that measure should improve to anywhere from a 2 percent to 3 percent gain in the current quarter. And while traffic should improve, it will continue to be challenging, Target told investors.
Target expects that adjusted earnings per share will be in a range between $1.09 and $1.19 for the current quarter.
For the full year, the company now expects $4.70 per share to $4.90 per share. That’s down from its original guidance of $4.85 per share to $5.05 per share.
Analysts had forecast $1.11 per share for the second quarter and $4.63 per share for the year.
Business, Pages 27 on 05/23/2013