Target’s quarterly profit off 7.6%
Posted on Wednesday, August 20, 2008
NEW YORK — Target Corp. posted a 7. 6 percent drop in second-quarter profit Tuesday and offered a cautious outlook for the third quarter as its customers focused on necessities and had trouble making their monthly credit card payments.
The Minneapolis-based retailer also said it had seen an erratic start to the back-to-school season and that it would open new stores at a slower pace in fiscal 2009 amid the uncertain economy.
Target said it earned $ 634 million, or 82 cents per share, for the three-month period that ended Aug. 2, down from $ 686 million, or 81 cents per share, a year earlier.
Sales grew 5. 7 percent to $ 15 billion from $ 14. 2 billion. Samestore sales, or sales at stores opened at least a year, slipped 0. 4 percent. Same-store sales are considered a key indicator of a retailer’s health.
Analysts surveyed by Thomson Reuters had expected a profit of 76 cents per share on revenue of $ 15. 46 billion.
Target shares fell 33 cents to $ 49. 72 in New York Stock Exchange composite trading. Target is little changed this year, compared with a 22 percent gain for Bentonville-based Wal-Mart Stores Inc.
The company had for several years outperformed rival Wal-Mart, the world’s largest retailer, but has stumbled in recent months largely because of its heavier emphasis on items such as clothing and home furnishings, which account for 40 percent of its business.
“Right now they’re just having to buckle down and figure out how to compete against Wal-Mart in a slowing market,” said David Abella, a portfolio man- ager at Rochdale Investment Management in New York with $ 2. 5 billion in assets, including shares of both retailers.
The retailer has still lost customers to Wal-Mart during the slowdown, Abella said.
“You don’t think to go there if you think, ‘Hey, I really need to save money this month.’ Wal-Mart comes to mind first,” he said.
Target said gross profit margin rates fell moderately from last year because sales grew faster in low-margin categories, which generally include food and essentials such as paper goods.
“The customer is very cashstrapped right now, and in some ways our greatest strength [has ] become somewhat of a challenge,” Target’s President and Chief Executive Gregg Steinhafel told investors during a conference call. “During these tough times, some of our consumers don’t want to be tempted as much as they have in the past.”
In its credit card operation, Target said, it earned $ 74 million, down 65 percent from $ 213 million a year earlier. The drop was due to Target’s reduced investment in the portfolio and to a higher bad debt expense resulting from higher write-offs in the current period and additions to the reserve for the future.
In May, Target closed its transaction to sell 47 percent of its credit card receivables to JPMorgan Chase for $ 3. 6 billion.
Chief Financial Officer Doug Scovanner told investors that while the company is comfortable with meeting full-year Wall Street guidance, the third quarter is presenting a challenge amid erratic sales patterns in August.
For August, Target estimates same-store sales declines from 1 percent to 3 percent. Scovanner told analysts that sales were weak in the first 10 days of the month but have improved. For the third quarter, it expects samestore sales to be unchanged from the year-ago period.
Analysts surveyed by Thomson Reuters expect Target to earn $ 3. 42 per share for the full year and 56 cents per share for the third quarter.
Target also told investors that the company plans to open 70 to 75 stores in 2009, down from a pace of 90 to 95 stores in the current fiscal year. Scovanner said the slower pace reflects a soft economic environment as well as challenges among its outside real estate development partners who have run into hurdles in obtaining funding or filling in space in some mall projects once expected to open in 2009.
Wal-Mart reported its results Thursday, raising its full-year earnings forecast after secondquarter profit rose more than expected, helped by tight inventory controls and a renewed focus on low prices. But the company predicted slower same-store sales growth in the U. S. for the current quarter, as the benefits of the federal stimulus checks dry up and customers find it harder to stretch their paycheck to the next payday. Information for this article was contributed by Lauren Coleman-Lochner with Bloomberg News.
FEEDBACK:
Something to say about this topic? Submit a Letter to the Editor online
