Canada Expansion Weights on Target’s Q3 Results

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

TargetMinneapolis—Target Corp. today reported a 46% dip in its third quarter profit as costs of its Canadian expansion weighed on results—not to mention more cautiously spending U.S. consumers.

For the quarter ended Nov. 2, Target posted net income of $341 million, or 54 cents a share, compared with net income of $637 million, or 97 cents a share, a year ago.

This includes a 29-cent loss from Canadian operations, the retailer noted. Excluding those adjusted earnings came in at 83 cents a share. Analysts’ estimate expected 62 cents a share.

Net revenue was up 1.9% to $17.3 billion in line with analysts’ call for $17.36 billion in sales. Comparable store sales edged up 0.9%.

‘Consumer Spending Constrained’

The Canadian division, which added 23 stores in the quarter, generated $333 million in sales and posted a $238 million loss before interest and taxes.

“While our initial sales and profits in Canada have not met our expectations, we remain enthusiastic about the Canadian market and confident in the long-term success of these stores,” CEO Gregg Steinhafel told analysts on a conference call.

Focusing on the U.S. division, Steinhafel said: “Target’s third quarter financial results reflect continued strong execution in our U.S. Segment in an environment where consumer spending remains constrained.”

Gross margins dipped to 30% from 30.3% due to category rate pressure from seasonal markdowns. Selling, general and administrative expenses expanded to 21.2% compared with 20.5% in the year-ago period.

Target’s credit card business increased 150 basis points to 9.5%, while debit card penetration expanded 440 basis points to 10.4%. Total store “REDcard” business rose to 19.9% from 14% in the year-ago quarter

For its fourth quarter, Target forecast adjusted earnings between $1.50 to $1.60 a share (excluding 22 to 32 cents due to costs related to Canadian market). Analysts’ estimate is for $1.56.

Target revised downward its previous full year outlook, projecting adjusted earnings at $4.59 to $4.69 a share (excluding 95 cents to $1.05 a share related to Canadian market). Previously, Target projected adjusted earnings of $4.70 to $4.90 a share.


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