Target Q2 profit falls 13% but tops Street; sales fall short
Minneapolis — Target Corp. reported that its second quarter profit dropped 13% to $611 million in the quarter ended Aug. 3, down from $704 million a year earlier, amid start-up costs related to its entry into Canada. Total company profits, excluding start-up costs related to Canada, increased 6.1%. Similar to other retailers, the chain issued a muted annual profit forecast as it deals with a still uncertain economy and cautious consumers.
“For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures,” said Target CEO, president and chairman Gregg Steinhafel. “In Canada, where we are only five months into our market launch, we continue to learn, adjust and refine operations in our existing stores as we prepare to open another 56 stores by year-end.”
Target opened its first Canadian stores in March, so sales from the locations were excluded from the key same-store sales figures. The company said $275 million in revenue came from Canada.
Total revenue reached $17.12 billion, up 2.4% from $16.45 billion in the quarter. Same-store sales were up 1.2%, below the 1.9% analysts had expected.
For the full year, Target now expects earnings per share to be at the low end of its previous guidance of $4.70 to $4.90. In May, the company trimmed its projections from the original outlook of $4.85 per share to $5.05, citing cautious shoppers.
Bigger-than-expected Q2 results for Lowe’s
Signs of a rebounding housing market were evident in Lowe’s sales for the second quarter ended Aug. 2, which were $15.7 billion, up 10.3% from $14.2 billion in the same quarter last year.
Comp-store sales for the world’s second-largest home improvement retailer were up 9.6%, as net earnings jumped 16.2% to $1.48 billion.
"Home improvement demand was strong during the quarter, and we capitalized on it with improving execution," said Lowe’s CEO Robert Niblock. "We drove a healthy balance of ticket and transaction growth, and delivered solid performance across all product categories."
The report follows by a day that of rival Home Depot, which posted a 10.7% comp-store sales gain.
As a result of its bigger-than-expected quarterly results, Lowe’s is boosting its fiscal year outlook and expects full year total sales to increase about 5%. It also plans to open 10 stores in fiscal 2013. As of Aug. 2, Lowe’s had 1,758 stores in North America.
Target’s 2Q profits solid, but outlook softens
Target produced solid profits on tepid second quarter sales growth butjoined the growing list of retailers to express reservations about the health of the consumer during the back half of the year.
Target said its U.S. stores produced a 1.2% same store sales increase during the second quarter ended August 3, and total sales increased 2.4% to $16.8 billion from $16.5 billion during second quarter last year. Operating profits grew at a meager 0.4% rate to $1.33 billion from $1.32 billion.
Sales at the 68 stores Target now operates in Canada following entry into that market earlier this year totaled $275 million.
Total company profits, excluding start-up cost related to entry into Canada, increase 6.1% to $1.19 from $1.12 during the second quarter last year. Including the costs related to Canada, earnings declined to $611 million, or 95 cents a share, compared to $704 million, or $1.06 a share last year.
“Target’s second quarter financial results benefited from disciplined execution of our strategy and strong expense control, offsetting softer-than-expected sales,” said Gregg Steinhafel, Target’s chairman, president CEO. “For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures. In Canada, where we are only five months into our market launch, we continue to learn, adjust and refine operations in our existing stores as we prepare to open another 56 stores by year-end.”
Concerns regarding the consumer spending outlook prompted the company to forecast full year adjusted profits toward the low end of earlier guidance that ranged from $4.70 to $4.90.
Target ended the quarter with 1,788 stores in the U.S. and 68 stores in Canada.