NEW YORK (AP) – Target Corp. reported a 5.2 percent drop in earnings for the fourth quarter, as big discounts to get tight-fisted shoppers to buy during the holiday season eroded profits.
The discounter, however, offered a full-year profit outlook that was above Wall Street estimates. Target's shares edged higher in premarket trading.
Target, like others including rival Wal-Mart Stores Inc., stepped up price cutting during the holiday shopping season in November and December to get bargain-hunting shoppers to spend. But that hurt margins and the retailer, based in Minneapolis, had reduced its fourth-quarter earnings outlook in January.
Target said Thursday that gross profit margin slipped to 28.4 percent in the fourth quarter, down from 28.7 percent in the year-ago period.
The company reported net income of $981 million, or $1.45 per share, in the three months ended Jan. 28. That compares with $1.04 billion, or $1.45 per share, in the year-ago period.
Revenue rose 3.3 percent to $20.94 billion. Revenue at stores opened at least a year rose 2.2 percent for the period.
Analysts had expected earnings of $1.40 per share on revenue of $21.23 billion, according to FactSet.
Target became a discount-store darling when it began offering stylish clothes and trendy decor under the same roof where shoppers could find toothpaste and cereal. Yet sales growth has been uneven since the Great Recession. Shoppers are looking elsewhere for lower prices. And rivals are copying its 12-year-old formula of partnering with designers.
Target announced in January that it is teaming up with unique specialty shops to offer limited edition merchandise, from dog biscuits to platform shoes, as it attempts to further distinguish itself from rivals. The temporary shops will be launched in May.
Earlier this year, Target also confirmed reports that it will test expanded displays of Apple products in 25 stores.
These initiatives are on top of two other strategies that the discounter has implemented to increase customer traffic and boost sales– its larger food offerings and its 5 percent discount for customers who pay with Target-branded credit and debit cards. The discounts began in late 2010.
Like many of its brick and mortar rivals, Target is also facing fierce competition from online rivals like Amazon.com, which are winning on price and selection. With shoppers increasingly armed with smart phones aps, consumers are quickly comparing prices and walking out if they get a better deal elsewhere. In fact, some of Target's weaker holiday categories were electronics, music and books, products that have migrated to the Web.
Those concerns were raised in a letter Target sent to suppliers a few weeks ago. In that letter, it asked suppliers for help in developing pricing and merchandising strategies that will make it more competitive with online rivals.
Target said Thursday that it expects earnings per share for the full year to be in the range of $4.55 to $4.75. That reflects expected expenses related to its entry in the Canadian market. Analysts expect $4.27 per share for the year, according to FactSet.
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