Target Q4 Profit Narrows 2% in “Highly Promotional” Environment

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Apparel and accessories from Prabal Gurung for Target, available now in stores and online.

Apparel and accessories from Prabal Gurung for Target, available now in stores and online.

Minneapolis—Target Corp. today reported a 2% decline in its fourth quarter profit but projected 2013 profit increases ahead of analysts’ estimates.

For the quarter ended Feb. 2, the mass merchant posted earnings of $961 million, or $1.47 a share, compared to a profit of $981 million, or $1.45 a share, a year earlier. Per-share profit increased to $1.47 a share from $1.45, reflecting a 2.8% decrease in shares outstanding.

Excluding the expenses related to its entry into the Canadian market, about $148 million, or 18 cents a share, Target earned $1.65 a share.

Total sales rose 6.8% to $22.37 billion while credit-card revenue was up 1.8% to $356 million.

Target’s results were in line with analysts’ average estimate for sales, and may have beat analysts’ average estimate for earnings of $1.47 although it’s unclear whether those estimates included one-time items.

“We’re pleased with Target’s fourth quarter performance, particularly in the face of a highly promotional retail environment and continued consumer uncertainty,” said Gregg Steinhafel, chief executive, said in a statement.

Gross Margin Narrows as Markdowns Rise

Comparable store sales in the quarter edged up 0.4% behind rival Walmart’s 1% gain and below the 1.7% quarterly average gain reported by Thomas Reuters data. The comp sales figure, the retailer’s worst since 2008, may have been hurt by the affects of Superstorm Sandy early in the quarter as well.

The number of customer transactions fell 1%–Target’s first drop since second quarter 2009, reported David Strasser, analyst at Janney Montgomery Scott LLC —while average transaction amount rose 1.4%.

Gross profit narrowed to 27.8% from 28.4%, hurt partly by merchandise markdowns as well as the company’s expanded fresh-foods assortments and a 5% discount given on its card purchases.

Moreover, the collaboration on a collection of limited edition designer merchandise with Neiman Marcus didn’t fare as expected with 70% off markdowns taken on many of the items.

Target forecast first quarter earnings of $1.10 to $1.20 a share, above analysts’ estimate for $1.05 a share. For full year 2013, Target estimated earnings between $4.85 to $5.05 a share (excluding 45 cents a share cost of its Canadian entry and impact of 30 cents a share related to its entire credit card receivables. Analysts’ consensus expects $4.82 a share.