Target Beats Wall Street Estimates

Net earnings down but adjusted earnings beat Wall Street consensus. Target

reported that its fourth quarter net earnings fell 5.2% to $981 million, down from $1.035 billion the previous year, as discounts used to lure holiday shoppers took a toll on the company's profits. Although net earnings were down for the last quarter of 2011, adjusted earnings of $1.49 per share were up from $1.38 per share during the same quarter a year earlier. Adjusted earnings also beat the consensus analyst estimate of $1.40 earnings per share. Target's fourth quarter revenue rose 3.3 percent to $20.94 billion on the back of a 2.2 percent sales increase at stores open for at least a year. However, the rise of same-store sales was offset by discounts to attract customers who are increasingly looking for the best possible deal. Target reported that its gross profit margin fell to 28.4 percent, down from last year's 28.7 percent. Target and other brick and mortar retailers like Wal-Mart

have been struggling to compete with online retailers who can beat them on price because they don't have to pay sales tax in many states. Although recent economic data points to an improving American economy, many consumers are still watching their spending very carefully. Target's customers are known for their thriftiness and many of them are now using hand held devices to compare prices while they shop. If they find a better deal elsewhere, they are likely to forego the purchase and buy the lower priced product later at one of Target's competitors. Target has tried to maintain customer loyalty by offering discounts to customers that use its Target credit and debit cards but these discounts are also eating away at the company's profit margins. The company is also attempting to set itself apart from competitors by partnering with merchandisers who can provide Target's stores with specialty products that are unavailable at any of its major competitors like Wal-Mart. To spur revenue growth, Target is counting on the opening of its urban CityTarget locations starting in July and its first Canadian stores, which are scheduled to open next year. The company also said that it will continue to invest in its retail store, online and mobile sales channels. Target said that it expects adjusted earnings per share of $4.55 to $4.75 and GAAP earnings per share of $4.05 to $4.25 for fiscal year 2012. The company said that the 50 cent difference represents the impact on 2012 results from Target's preparations to enter the Canadian market. Gregg Steinhafel, Target's chairman, president, and chief executive officer, said that the company performed well given the current economic environment, saying that "Target generated strong financial performance in 2011, overcoming sluggish economic growth, restrained consumer spending and an intensely promotional holiday season." Investors who are interested in Target should keep a close eye on unemployment figures and other economic data that could serve as indicators of whether or not consumers will start opening their wallets and spending more time and money shopping.