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Target pulls down other retailers with tepid quarter, outlook

February 28, 2017

Target Corp. reported a 43 percent drop in fourth-quarter profit as weak store sales overshadowed an improving online performance. Its outlook for the first quarter and all of 2017 were far below what industry analysts had been expecting.

Shares tumbled 13 percent Tuesday morning and the numbers in Target's report pulled other retailers like Wal-Mart Stores Inc. and Macy's Inc. down with it in premarket trading.

The Minneapolis-based company, which has about dozen stores in the Indianapolis area and 32 in Indiana, warned early this year about what was to come after a disappointing holiday season, but investors were still rattled by the numbers released Tuesday.

For 2017, Target Corp. anticipates an adjusted profit of $3.80 to $4.20 per share. That's wasn't even close to the per-share earnings of $5.32 that Wall Street was projecting, according to a poll of analysts by FactSet.

Neither was Target's first-quarter profit projection of between 80 cents and $1. Analysts, according to FactSet, expected $1.33 per share.

For the three months ended Jan. 28, Target earned $817 million, or $1.46 per share. Excluding certain items, earnings were $1.45 per share, or 5 cents less per share than industry analysts had projected, according to analysts polled by Zacks Investment Research.

The quarter's profit came in well below the $1.43 billion, or $2.31 per share, the company reported last year.

Sales dropped to $20.69 billion, from $21.63 billion last year, and were also short of Wall Street projections.

Sales at stores open at least a year, a key measure of a retailer's health, fell 1.5 percent. It was the third consecutive quarter of declines.

All traditional retailers have struggled as Amazon.com and other online retailers draw shoppers away, but Target has been unable to match the strategy of competitors like Wal-Mart Stores, which posted another quarter of higher customer traffic and same-store sales. Online sales for the Bentonville, Arkansas-based chain surged 29 percent.

Still, other Target rivals are hurting.

Last week, J.C. Penney turned a profit for the fourth quarter, but total sales fell slightly. Comparable-store-sales declined a bit and the company issued a conservative forecast.

Kohl's Corp. reported a lower fourth-quarter profit and total sales declined. Revenue at stores open at least a year dropped 2.2 percent.

Earnings at Macy's, the nation's largest department store chain, slid 13 percent.

Under Target Chairman and CEO Brian Cornell, Target has pushed aggressively online and increased the number of stores that ship directly to online shoppers to match Amazon's two-day free deliveries for customers.

But weak sales at its stores is not going be fixed easily.

"Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores," Cornell said in a company release.

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