Amid a sluggish economic environment, cautious consumer
spending and intense competition,
), the operator of general merchandise and food discount stores
in the United States, posted first-quarter fiscal 2013 results.
The quarterly earnings, including U.S. and Canadian operations,
came in at 81 cents a share that dipped from $1.03 reported in
the prior-year quarter.
Target's adjusted earnings of $1.05 per share also dropped
from $1.11 delivered in the year-ago quarter. This relates to
results from U.S. operations only. Analysts polled by Zacks had
projected earnings of 86 cents per share for the quarter.
The quarterly earnings fell short of Target's earlier
projection of $1.10 to $1.20 per share for the quarter under
review. Management stated that the earnings came in below
expectation due to lower-than-anticipated sales witnessed
principally in apparel and other seasonal and weather-related
Let's Unveil the Picture
Total revenue edged down 1% to $16,706 million from the
prior-year quarter, and came below the Zacks Consensus Estimate
of $16,897 million. Sales for the U.S. segment, which now
comprise U.S. Retail and U.S. Credit Card segments after the sale
of U.S. credit card portfolio in Mar 2013, came in at $16,620
million and climbed marginally by 0.5%.
Minneapolis, Minn. based company, Target, said that
comparable-store sales for the quarter fell 0.6% compared with
5.3% increase registered in the prior-year quarter. The number of
transactions edged down 1.9%, however, the average transaction
amount climbed 1.3% in the quarter.
Gross profit at the U.S. segment rose 2.3% to $5,111 million,
whereas gross margin expanded 50 basis points to 30.7%. Segment
operating income decreased 7.5% to $1,239 million, whereas
operating margin contracted 60 basis points to 7.5%.
Target's credit card penetration increased 140 basis points to
8.5%, whereas debit card penetration expanded 410 basis points to
8.6% during the quarter. Total store REDcard penetration climbed
to 17.1% from 11.6% in the year-ago quarter.
We believe Target's P-fresh remodel program, 5% REDcard
Rewards program and Price Match strategy will help sustain sales
momentum, continue to drive traffic and enhanced customer
shopping experience. In order to tap the urban markets where real
estate remains a constraint, the company plans to open
smaller-format stores called CityTarget. Moreover, in order to
expand its global footprint, the company is eyeing Canadian
market with a store opening plan of 124 in 2013. In the first
quarter 24 Canadian stores were opened. Sales generated during
the quarter were $86 million.
Target's credit and debit cards penetration in Canada both
came in at 1%. Total store REDcard penetration came in at 2%.
Other Financial Details
During the quarter, Target bought back about 8.5 million
shares at a price of $64.04 per share, aggregating $547 million,
and also paid dividends of $232 million.
The company ended the quarter with cash and cash equivalents
(including short-term investments of $1,112 million) of $1,819
million, long-term debt and other borrowings of $13,691 million
and shareholders' equity of $16,520 million.
Target currently operates 1,784 stores, of which 359 are
general merchandise stores, 1,168 are expanded grocery
assortment, 251 are SuperTarget stores and 6 are CityTarget
Strolling Through Guidance
Target now projects adjusted earnings in the range of $1.09 to
$1.19 for the second quarter and between $4.70 and $4.90 per
share for fiscal 2013.
On a GAAP basis, including dilution due to entry in the
Canadian market and impacts related to the divestment of the
credit card portfolio, management forecasted earnings between 90
cents and $1.00 for the second quarter and in the band of $4.12
to $4.32 for fiscal 2013.
The current Zacks Consensus Estimates for the second quarter
and fiscal 2013 are $1.05 and $4.49 per share, respectively.
Target is persistently trying every means to keep afloat in an
economy, which is still not completely awakened from the state of
hibernation. Target's efficient marketing, multi-channel
strategy, product innovation, compelling pricing strategy, and
new merchandise assortments, should drive comparable-store sales
and operating margins in the long term.
We expect the company to gain market share, and believe that
more focus on consumable items should boost sales and earnings in
a sluggish consumer environment.
The economy has not yet recovered fully. It is evident that
the company's customers remain sensitive to macroeconomic factors
including interest rate hikes, increase in fuel and energy costs,
credit availability, unemployment levels, and high household debt
levels, which may affect their discretionary spending, and in
turn curtail the company's growth and profitability.
Moreover, a greater concentration of the company's revenue
generating capabilities in limited regions of the United States,
poses a competitive threat to Target, compared with
Wal-Mart Stores Inc.
Costco Wholesale Corporation
), which are geographically diverse and more resourceful.
Currently, Target holds a Zacks Rank #3 (Hold). Another stock
to be merited in the retail discount store chain sector is
The TJX Companies, Inc.
) , which carries a Zacks Rank #2 (Buy).
COSTCO WHOLE CP (COST): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
TJX COS INC NEW (TJX): Free Stock Analysis
WAL-MART STORES (WMT): Free Stock Analysis
To read this article on Zacks.com click here.