Target 4Q Net Up, but Investors Wary

Target Corp. beat Wall Street estimates with its fourth-quarter results, but investors pulled back over concern it can deliver consistent growth.

NEW YORK — Target Corp.’s fourth-quarter results beat Wall Street analysts’ estimates, but investors pulled back on the stock as they weighed the discount retailer’s ability to deliver consistent profit growth.

As a result, the stock dropped to as low as $54.15 Thursday, before closing down 2.17 percent at $54.59 in New York Stock Exchange Trading.

In a research note from Gold­man Sachs, analyst Adrianne Shapira said Target’s fourth-quarter gross margin rates were not up to par. Still, the retailer’s results were robust, with net income rising 13.7 percent for the quarter on a 11.4 percent sales gain. And despite a drop in net income for the year-end period, Target posted more than $50 billion in annual sales.

For the quarter ended Jan. 28, profits climbed to $939 million, or $1.06 a diluted share, from $825 million, or 91 cents, in the same year-ago period. The discounter beat Wall Street’s earnings per share estimate by 1 cent, according to a poll by Thomson Financial. Total revenues jumped 11.6 percent to $16.95 billion from $15.19 billion, which included sales rising to $16.57 billion from $14.88 billion. Comp-store sales rose 4.2 percent in the period. The company said its gross margin rate improved slightly from a year ago. The balance of the company’s revenues is from its credit card operation.

For the year, net income fell 24.7 percent to $2.41 billion, or $2.71 a diluted share, from $3.2 billion, or $3.51, from a year ago. Total revenues rose 12.3 percent to $52.62 billion from $46.84 billion, which included a sales gain of 12.2 percent to $51.3 billion from $45.68 billion.

“Through our continued strategic investments and unwavering focus on delighting guests, we have delivered another year of outstanding performance. As we look to 2006 and beyond, we believe that we can continue to deliver an exceptional shopping experience for our guests, the workplace that is preferred by team members, the supportive environment for the communities where we operate and a superior return for our shareholders,” said Robert Ulrich, chairman and chief executive officer, during a conference with Wall Street analysts.

Greg Steinhafel, president, said during the call that the company was pleased with its apparel and footwear offerings in 2005. He highlighted the retailer’s Go International program, which focuses on the junior and contemporary customers. The program, a series of limited-engagement apparel collections from internationally renowned designers, is Target’s way of adding “freshness and newness” on a day-to-day basis. The two lines to be launched in the fall, one featuring British designer Luella Bartley, will be available for 90 days.

This story first appeared in the February 17, 2006 issue of WWD.  Subscribe Today.

The company opened 109 stores in 32 states in 2005. Within the bath and body category, the retailer is launching a collection of 500 items for men and women. The discounter also improved its softlines presentation and signage with the introduction of enhanced pictures in intimates, women’s apparel, men’s and kids. “These new pictures allow us to display our designer brands and make it easier and faster for our guests to make clothing selections,” the president said.

Steinhafel also emphasized that the company is focused on supporting programs that improve the health and safety of the local communities in which the retailer has stores. He said the company’s goal is to retain a team of talented and diverse individuals by “demanding integrity, discipline, speed [and] innovation throughout the entire organization and by reinforcing our commitment to our Expect More/Pay Less promise.”