Target sees solid year after weak holiday quarter

Retailer Target Corp said it appears poised for a solid showing in the first quarter and forecast a higher profit for the year after a weak performance in the key holiday season.

Still, shares slid 3.6 percent to $61.77 in early Wednesday trading.

For the current year, Target forecast adjusted earnings of $4.85 to $5.05 per share, which would exceed the $4.76 it earned last year.

Target did not give a sales forecast, but Chief Executive Gregg Steinhafel said it faced a "highly promotional retail environment and continued consumer uncertainty."

It was not immediately clear how the company's results and forecasts compared to analysts' expectations.

Target rang up 1 percent fewer purchases in the fourth quarter, compared with a year earlier. But shoppers bought 0.7 percent more each time they shopped and the average spent was up 1.4 percent.

It was Target's weakest holiday season performance since 2008, and some strength in January helped prop up what could have been even weaker numbers, said Sandy Skrovan, U.S. research director at Planet Retail.

"Walmart proved the victor over Target for the 2012 holiday season," Skrovan said, pointing out that Walmart U.S. same-store sales rose 1 percent in the quarter. "But Target won the year overall since, unlike Walmart, its affluent shopper base tends to be more insulated from economic swings."

Target's holiday season included a disappointing showing for its collection of gifts sold in collaboration with high-end department store chain Neiman Marcus. The line that includes designer dresses and dishes launched on December 1, and Target sharply discounted the goods even before Christmas

Stronger sales of food and value-priced items only partially offset holiday weakness as shoppers held back from discretionary spending in an uncertain economy.

Wal-Mart Stores Inc said last week that Walmart U.S. same-store sales were likely to be flat this quarter as consumers faced higher gasoline prices and smaller paychecks after the expiration of the U.S. payroll tax cut.

At Target, more shoppers used its credit and debit cards. The cards offer a 5 percent discount to foster customer loyalty, but the discount can also pressure margins.

Target said 15.5 percent of sales in stores during the quarter were paid with its debit and credit cards, up from 14 percent in the third quarter and 10.8 percent a year earlier.

The fourth-quarter gross margin declined to 27.8 percent of sales from 28.4 percent a year earlier, due in part to markdowns on seasonal merchandise.

Target earned $961 million, or $1.47 per share, in the fiscal fourth quarter, down from $981 million, or $1.45 per share, a year earlier. Target had fewer shares outstanding in the latest period.

Adjusted earnings, excluding items such as costs related to Canadian store opening plans, rose to $1.65 per share from $1.49 per share a year ago.

Target tempered profit expectations back in early January, when it reported flat December same-store sales and forecast earnings per share to meet or somewhat exceed the low end of its prior view. Target's outlook was for net earnings of $1.45 to $1.55 per share and adjusted earnings of $1.64 to $1.74 per share.

Target previously said sales rose 6.8 percent to $22.37 billion in the fourth quarter, with same-store sales up 0.4 percent. Same-store sales missed analysts' average target of 0.8 percent, according to Thomson Reuters I/B/E/S.

For the first quarter, Target forecast adjusted earnings of $1.10 to $1.20 per share versus $1.11 a year ago.

(Reporting by Jessica Wohl in Chicago; Editing by Jeffrey Benkoe)