By  on May 16, 2006

NEW YORK — Although Target Corp. delivered robust first-quarter sales and profits, earnings per share missed the mark.

And the dip in the gross margin rate for the quarter, which caused Target's EPS to fall a penny shy of Wall Street estimates, led several analysts to lower their expectations for the company's full-year profits for 2006 and 2007. The miss also resulted in a downgrade of the stock to "neutral" from "buy" by Merrill Lynch analyst Virginia Genereux. Another analyst, though, said the retailer was poised to deliver double-digit profits for the next five years.

Investors and analysts walked away from the Target conference call Monday with some good news: The retailer said it has not felt any effects of Wal-Mart's efforts to move upscale.

"We are pleased with our first-quarter results," said Bob Ulrich, chairman and chief executive officer, in a statement. He said results reflect the company's "continued success in delighting our guests with the right combination of innovation, design and value."

For the quarter ended April 29, net income rose 12.1 percent, to $554 million, or 63 cents a diluted share, from $494 million, or 55 cents, in the year-ago quarter on total revenues that gained 12 percent, to $12.86 billion from $11.48 billion. Total revenues include an 11.8 percent increase in sales, to $12.49 billion from $11.17 billion. The balance of Target's revenue came from its credit card business. Same-store sales in the period rose 5.1 percent.

Analysts expected earnings of 64 cents a diluted share. Due to the miss, shares of Target closed down 4.2 percent at $50.02 on the New York Stock Exchange Monday. Trading volume was heavy at 24.8 million, which compares with a three-month trading volume of 3.9 million, according to Yahoo Finance.

During a question-and-answer session on the conference call, management was asked about the competitive environment and whether they've noticed any impact from Wal-Mart's efforts to introduce more upscale merchandise. Management said the company hasn't seen "any impact from Wal-Mart." That's partly because Wal-Mart's merchandising push is limited to home goods and there's only a "slight upscaling in apparel," Target executives said, adding that Wal-Mart's upscale focus is "not of any meaningful scale at this point."

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