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Target trims forecast on sluggish sales
August 21st, 2013
MINNEAPOLIS – Net income for the second quarter of fiscal 2013 fell 13.2% to $611 million at Target Corp., although adjusted earnings of 97 cents per diluted share exceeded the average estimate among analysts surveyed by Thomson Reuters by a penny.
Results of Target’s Canadian operations, which are included in the adjusted total, reduced earnings by 21 cents per share.
Sales rose 4% to $17.12 billion, short of Wall Street’s projection of $17.26 billion. Comparable-store sales in the United States grew 1.2%, well below the company’s forecast of 2% to 3%. The tepid same-store sales growth reflects a 1.4% drop in customer traffic that partially offset a 2.7% increase in the average transaction.
"Target’s second quarter financial results benefited from disciplined execution of our strategy and strong expense control, offsetting softer-than-expected sales," said chairman, president and chief executive officer Gregg Steinhafel. "For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures. In Canada, where we are only five months into our market launch, we continue to learn, adjust and refine operations in our existing stores as we prepare to open another 56 stores by year-end."
Target’s Canadian stores generated $275 million in sales, with gross margin of 31.64%. Selling, general and administrative (SG&A) expense totaled $207 million, including start-up costs as well as operating expenses, resulting in an EBITDA (earnings before interest, taxes, depreciation and amortization) loss of $120 million. Including depreciation and amortization expense of $49 million, the EBIT loss for the Canadian segment totaled $169 million.
In May Target reduced its fiscal year adjusted earnings guidance to a range of $4.70 to $4.90 per diluted share from a previous forecast of $4.85 to $5.05 per share. Management now expects earnings to come in near the low end of the revised range due to a negative impact of 82 cents per share from its Canadian operations; losses from early debt retirement of 42 cents per share; and net accounting gains of about 29 cents per share related to the sale of Target’s entire consumer credit card receivables to TD Bank Group.