Target Corp. has a big goal ahead: revenues of over $100 billion within the next six or seven years.
The discount chain plans to achieve the goal by growing further in the U.S. and also expanding rapidly in Canada. Target also expects to double earnings per share within that time frame. The retailer had total sales of $65.8 billion in fiscal 2010.
The aggressive expansion comes as Target’s rival, Wal-Mart Stores Inc., is struggling to right its U.S. stores division, which is seeing comparable-store sales decline. Wal-Mart’s same-store sales fell 1.8 percent in the fourth quarter, their seventh straight decline.
Target revealed the goal as it reported net income of $1.04 billion, or $1.45 a diluted share, for the fourth quarter ended Jan. 29, 10.6 percent above the $936 million, or $1.24, recorded in the 2009 quarter. EPS were 5 cents above the $1.40 expected, on average, by analysts polled by Yahoo Finance.
Same-store sales at Target advanced 2.4 percent.
Target’s fourth-quarter gross margin rate was 28.7 percent, down from 29.1 percent in 2009, due to the impact of its PFresh remodel program, and RedCard initiative. EPS also benefited from a $2.5 billion share repurchase program. Sales rose 2.8 percent, to $20.28 billion from $19.72 billion. The increase in total revenues was slightly lower, 2.4 percent to $20.66 billion, because of a 17 percent decline in credit card revenues, to $384 million.
For the full year, net income jumped 17.4 percent to $2.92 billion, or $4 a diluted share, from $2.49 billion, or $3.30 a share. Sales moved up 3.7 percent to $65.79 billion from $63.44 billion while comps advanced 2.1 percent. Gross margin was unchanged year-on-year at 30.5 percent of sales.
Investors reacted to the results by pushing up shares of Target $1.74, or 3.5 percent, to $52 as an afternoon rally lifted the S&P Retail Index 4.12 points, or 0.8 percent, to 510.39.
Target plans to roll out the PFresh expanded food format to 380 stores this year. About 340 units received the PFresh format in 2010.
The RedCard, launched nationally in October, gives a 5 percent discount on most Target purchases. Profits for the credit card segment were $541 million in 2010, from $201 million in 2009. “Beyond the profit it generates for Target,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corp., “[the RedCard] is deepening our relationship with our best guests, who shop more often and spend more. The RedCard will continue to deliver incremental sales in 2011.”
Target in 2013 and 2014 will open 100 to 150 stores in Canada, a result of its $1.85 billion Zellers acquisition. Steinhafel predicted the Canadian units will be a major factor in pushing its total sales to over $100 billion in the next six to seven years.
Steinhafel said comp-stores sales should rise 4 percent to 5 percent in 2011, which prompted one analyst on the earnings call to question how the retailer can be so confident in this economy. “We’re confident that the two sales-building strategies, PFresh and the RedCard, are working,” said Douglas A. Scovanner, executive vice president and chief financial officer. In a rare show of solidarity with a competitor, he said, “We just saw that the largest player in the marketplace had another quarter of [declining comps]. I think a lot of people are picking on my big brother. It’s much more of what’s happening in the macro-economy and not analyzing [Wal-Mart’s] stumbles and the challenges they have and how they’re facing them.”
As for Target’s same-store sales projections, “There’s an expectation of base performance remaining positive that would get us to the 4 percent to 5 percent,” said Scovanner.
Steinhafel added that “the housing market is still unhealthy and there are some strong early signs of inflation in apparel, home and food. Rising energy prices [could have] a dampening effect on the broader economy. We have far less confidence in the underlying base economy.”
Kathryn A. Tesija, executive vice president of merchandising, said Target will offer several limited time collections in 2011 including, in March, 34 dresses from Go International designers to commemorate the franchise’s fifth anniversary. A Calypso St. Barth lifestyle collection will bow in May featuring women’s apparel, jewelry and accessories, baby clothing and home furnishings. Sales have been more difficult in electronics and home, she said.
Mobile traffic rose three-fold in 2010 and accounted for 8 percent of online page views. The retailer expects to launch its own platform for target.com in the third quarter, marking the end of its partnership with Amazon.com. “It will completely transform the online experience for guests,” Steinhafel said.