Target posted better-than-expected earnings for the first three months of 2012, even as plans for its Canada expansion took a toll on the US discount retailer’s results.
America’s second-largest retailer by sales after Walmart posted first-quarter net income of $697m or $1.04 a share, compared with $689m or $0.99 a share in the same period last year.
The Minneapolis-based company, which has more than 1,700 stores across the US, plans to open its first Canadian outlets in 2013. After stripping out items such as these expansion costs, earnings totalled $1.11 a share.
Shares in Target, which sells stylish clothes under the same roof as toothpaste and cereal, rose 0.4 per cent in early Wednesday trading to $55.32.
Total revenues grew 5.9 per cent to $16.87bn from $15.94bn in the same period last year, beating analysts’ expectations of $16.83bn.
Gregg Steinhafel, Target chief executive, said: “While our outlook for the remainder of 2012 reflects continued economic uncertainty, we are confident in our strategy, keenly focused on delivering an affordable and inspirational merchandise assortment …and committed to making thoughtful investments in our US and Canadian business segments.”
As announced earlier this month, sales in the first quarter rose 6.1 per cent to $16.5bn from $15.6bn last year. This was due to a 5.3 per cent increase in comparable-store sales and the contribution from new stores, thanks to warm weather and the early Easter holiday.
Sales slowed in April, however, against a backdrop of renewed uncertainty surrounding US growth and employment prospects. Target, like its rivals, is still contending with a slow economic recovery at home that has left many of its lower-income shoppers wary.
While the retailer hopes that a fall in petrol prices will increase their customers’ spending ability, it is managing inventories tightly in preparation for a possible further retraction in sentiment.
First-quarter online sales for the company increased at a slower rate than in-store sales, but the company said it was strengthening its web platform in order to better improve its longer-term sales outlook. Earlier this month Target said it would stop selling Amazon’s Kindle brand of ereaders and tablets by early summer in response to growing competition from the online vendor.
Nearly 12 per cent of sales in Target stores were paid for with the company’s branded debit and credit cards, which offer a 5 per cent discount and free online shipping. Penetration has jumped from a year ago when only 7.6 per cent of purchases were made with the cards. But net credit revenues declined 7 per cent in the quarter compared with last year.
“This is partly fuelled by the recession. It has also to do with Target getting rid of their co-branded Visa card which you could use at other stores. Now it is just a store card. Also, more people are using debit rather than credit cards and more people are paying off their balances, meaning that the interest rate payments to the company are less,” said Joseph Feldman, retail analyst at Telsey Advisory Group.
In spite of the company saying it expected “a slow and uneven economic recovery” for the full-year 2012, Target raised its outlook for the year by 5 cents and said it expected earnings per share of $4.10 to $4.30 a share, when taking into account costs linked to its entry into Canada.