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Target Corp. stumbled in the fourth quarter as markdowns weighed on its net earnings and although The TJX Cos. Inc. turned in strong results for the period, the off-price giant acknowledged growth would slow this year.
Target’s net earnings fell 2 percent in the fourth quarter to $961 million, or $1.47 a diluted share, from $981 million, or $1.45, a year earlier. Adjusted earnings per share rose to $1.65, 17 cents ahead of the $1.48 Wall Street analysts projected — but the company’s outlook disappointed and shares fell 1.5 percent to $63.12.
The retailer’s fourth-quarter gross margin rate declined to 27.9 from 28.4, in part due to markdowns on seasonal merchandise.
Total revenues for the quarter ended Feb. 2 rose 6.8 percent to $22.73 billion from $21.29 billion a year earlier. Comparable-store sales in the U.S. increased just 0.4 percent
Sales in the fourth quarter were concentrated around Black Friday and Christmas, with a lull in between. Target’s online and mobile sales were a bright spot in the quarter, growing by a percentage in the triple digits. The firm is testing a program that lets customers pay for goods online and pick them up in the store or have them delivered the same day.
Despite the promise of the online business, the general consumer mood has darkened.
“Consumer sentiment fell sharply in the fourth quarter, reflecting turmoil surrounding the fiscal cliff and overall political uncertainty,” said Gregg Steinhafel, chairman, president and chief executive officer, during a conference call.
“The U.S. economy is growing at a painfully slow rate and unemployment remains persistently high,” Steinhafel said. “While there are some encouraging signs in the housing market, volatility and consumer confidence, a payroll tax increase and rise in the price of gas all present incremental headwinds. Given these new challenges facing an already sluggish economy, we have a tempered view of the near-term sales environment.”
The firm returned $2.7 billion to shareholders during the year through dividends and share repurchases and is gearing up an expansion north of the border.
Target’s first 24 Canadian units will open in April. About 40 of the total planned 124 stores will be expanded beyond their original footprints. The Canadian business will dilute the retailer’s net EPS by 40 cents this year.
For the full year, Target said net earnings rose 2.4 percent to $3 billion, or $4.52 a diluted share, from $2.93 billion, or $4.29, on a 4.9 percent climb in total revenues to $73.3 billion from $69.87 billion.
This year, the discounter projects net earnings will rise to a range of $4.70 to $4.90.
In the off-price channel, TJX is plotting continued expansion.
The retailer’s fourth-quarter profits gained 27.3 percent to $604.8 million, or 82 cents a diluted share, from $475.3 million, or 62 cents, a year earlier. Earnings came in 1 cent ahead of the 81 cents Wall Street analysts projected. Sales for the quarter ended Feb. 2 rose 15.1 percent to $7.72 billion from $6.71 billion. Comparable-store sales, which strip away an extra week in the most-recent quarter, gained 4 percent.
The corporate parent to TJ Maxx and Marshalls saw 2012 earnings jump 27.4 percent to $1.91 billion, or $2.55 a diluted share, from $1.5 billion, or $1.93, in the prior year. Sales gained 11.6 percent to $25.88 billion from $23.19 billion. Comp sales increased 7 percent.
Carol Meyrowitz, ceo, told analysts on a conference call that, “We are well on the road to being a $40 billion company and beyond.”
Even so, TJX is projecting comp-sales growth to slow to just 1 to 2 percent this year.
E-commerce is expected to become an important part of the equation as the off-pricer looks to maintain growth.
“Our goal is to launch our TJ Maxx Web site in a controlled, small test mode in the back half of this year,” Meyrowitz said. “As we have been saying all along, we believe e-commerce will be a huge opportunity for TJX, but we will take our time to do it right and make money doing it. More importantly, we will not disappoint our customers.”
Shares of TJX gained 2.4 percent to $44.75.