Amidst sluggish economic environment, cautious consumer
spending and intense competition,
Target Corporation
(
TGT
), the operator of general merchandise and food discount stores
in the United States, posted third-quarter 2012 results.
Including costs related to Canadian operations and benefits
associated with the pending sale of credit-card receivables
portfolio, quarterly earnings came in at 96 cents a share, up
17.6% from 82 cents earned in the prior-year quarter on the back
of healthy sales. Lower shares outstanding also provided cushion
to the bottom line.
Excluding the above items, the company posted adjusted
earnings of 90 cents a share that rose 4.3% from 86 cents
delivered in the year-ago quarter. The quarterly earnings
including U.S. operations and costs related to Canadian
operations came in at 77 cents a share. Analysts polled by Zacks
had projected earnings of 79 cents a share for the quarter.
Let's Unveil the Picture
Total revenue climbed 3.2% to $16,929 million from the
prior-year quarter, and came in line with the Zacks Consensus
Estimate. U.S. retail sales grew 3.4% to $16,601 million as
shoppers are gradually opening up their wallets but still remain
wary.
Minneapolis, Minnesota-based Target said that comparable-store
sales for the quarter rose 2.9% compared with a 4.3% increase
registered in the prior-year quarter. The number of transactions
rose 0.5%, whereas the average transaction amount climbed 2.4% in
the quarter.
Gross profit at the U.S. Retail segment jumped 2.9% to $5,032
million; however, gross margin shriveled 20 basis points to
30.3%, as the rate of increase in sales were not able to fully
offset 3.6% rise in cost of sales. Segment operating income
increased 3.4% to $963 million, whereas operating margin remained
flat at 5.8%.
The company indicated that revenue from the Credit Card
segment tumbled 5.8% to $328 million. Target also said that
segment profit dropped to $138 million in the quarter from $143
million in the prior-year period.
Target's credit card penetration increased 110 basis points to
8%, whereas debit card penetration expanded 340 basis points to
6% during the quarter. Total store REDcard penetration climbed to
14% from 9.5% in the year-ago quarter.
Target's P-fresh remodel program, 5% REDcard Rewards program,
Target/Neiman Marcus Holiday Collection and new Holiday Price
Match will help sustain sales momentum, continue to drive traffic
and enhanced customer shopping experience. The company's focus on
"Expect More. Pay Less." brand promise is also bearing fruit.
Moreover, in order to expand its global footprint, the company is
eying Canadian market with an expected entry in 2013.
Other Financial Details
During the quarter, Target bought back about 1.7 million
shares at a price of $62.90 per share, aggregating $104 million,
and also paid dividends of $236 million.
The company ended the quarter with cash and cash equivalents
(including short-term investments of $800 million) of $1,469
million, total unsecured debt and other borrowings of $17,054
million and shareholders' equity of $16,352 million.
Stores Update
Target currently operates 1,781 stores, of which 395 are
general merchandise stores, 1,130 are expanded grocery
assortment, 251 are SuperTarget stores and 5 are CityTarget
stores.
Strolling Through Guidance
Target now projects adjusted fourth-quarter 2012 earnings
between $1.64 and $1.74 per share. On a GAAP basis, including
expenses related to the company's entry in the Canadian market,
management projected earnings between $1.45 and $1.55 for the
quarter. The current Zacks Consensus Estimates for the fourth
quarter is $1.50 per share.
Let's Conclude
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 company's long-term
objective is to attain $100 billion or more in sales and $8.00 or
more in earnings per share by 2017.
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.
(
WMT
) and
Costco Wholesale Corporation
(
COST
), which are geographically diverse and more resourceful.
Given the lingering macro-economic concerns, we have a
long-term Neutral recommendation on the stock. Moreover, Target
holds a Zacks #3 Rank that translates into a short-term Hold
rating.
COSTCO WHOLE CP (COST): Free Stock Analysis
Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
Report
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