For the second year running, Target Corp (NYSE:TGT) missed expectations with its fourth-quarter earnings, sending the stock down more than 4% in pre-market trading.
The retail giant said its improved store layouts and exclusive partnerships with home furnishing and apparel brands helped to bring more people through the doors, but a decision to raise employee wages hit profit margins.
Excluding items, the Minneapolis-based group earned a profit of US$1.37 per share in the quarter ended February 3 – just shy of the average estimate of US$1.38.
Earnings miss, but revenue and same-store sales beat…
Despite the earnings miss, overall Target enjoyed a fairly robust holiday season.
Revenue came in at US$22.8bn, slightly ahead of the US$22.5bn Wall Street analysts had penciled in.
Same-store sales – a key indicator of a retailer’s health which strips out the impact of new and closed stores – rose 3.6% compared to the year-ago period. That was also ahead of the 3.1% analysts had forecast.
Net income for the fourth quarter, which included an extra week than in 2016, totaled US$1.1bn, or US$2.02 a share, compared with US$817mln, or US$1.45 per share, a year earlier.
Digital sales climb once again
Target is also making strides online as it looks to fend off competition from Amazon.com Inc (NASDAQ:AMZN) and other e-tailers.
Digital sales climbed 29% in the fourth quarter to add 1.8 percentage points to Target’s same-store sales growth, and 2017 marked the fourth consecutive year hat the company registered online sales growth in excess of 25%.
“Our fourth quarter results demonstrate the power of the significant investments we've made in our team and our business throughout 2017,” said chairman and chief executive Brian Cornell.
“While we have a lot left to accomplish, our progress in 2017 gives us confidence that we are making the right long-term investments to best position Target for profitable growth in a rapidly changing consumer and retail environment.”
As for the year ahead, Target said it expects a low single digit increase in same-store sales as well as a slight fall in earnings per share to between US$5.15 and US$5.27. Wall Street analysts have penciled in earnings of US$5.27 in 2018.
Shares were down 4.6% to US$71.65.