NEW YORK (AP) — Target Corp. reported that fourth-quarter earnings fell 5.2 percent due to sluggish holiday sales.
But the discounter, which said Thursday that its business has rebounded since then, offered a full-year profit outlook that was above Wall Street estimates.
The holiday season turned out to be fiercely competitive with stores offering deep discounts to get cost-conscious shoppers to buy. But Target's cutting wasn't as aggressive as rivals because it chose give up some sales in order to hold onto profit margins.
The company, based in Minneapolis, said revenue rose 3.3 percent to $20.94 billion, up from the $21.23 billion analysts polled by FactSet had expected. Revenue at stores opened at least a year — an indicator of a retailer's health — rose 2.2 percent in the fourth quarter. Profit margins, meanwhile, slipped to 28.4 from 28.7 percent in the year-ago period.
"We're pleased with the pace of our sales since the holiday season," said CEO Gregg Steinhafel on Thursday during a conference call with investors. "Yet, we expect we'll continue to see mixed signals in the economy going forward."
The company earned $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. Analysts had expected $1.40 per share.
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.
Like many of its bricks-and-mortar rivals, Target also faces competition from online rivals like Amazon.com, which can offer lower prices and better selection because they don't have the same overhead costs. And shoppers armed with smartphones often are comparing Target prices with online competitors in the stores.
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 major 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.
Target's efforts seem to be working. The company noted that revenue at stores opened at least a year in February is running well ahead of the 4 percent estimate for the fiscal first quarter. The company said that the improvement was across all merchandise categories.
Target also noted 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.
For the fiscal year that ended Jan. 28, Target had earnings per share of $4.28 per share on revenue of $68.5 billion. The company reiterated its annual goal to generate $8 per share on sales of $100 billion or more by 2017.
Shares rose $1.53, or 2.9 percent, to close at $54.50 on Thursday.