Amid a 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
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
categories.
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.
Stores
Update
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 stores.
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.
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 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.
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.
(TJX) , which carries a Zacks Rank #2 (Buy).
COSTCO WHOLE CP (COST): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
TJX COS INC NEW (TJX): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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