Target profit misses estimates in holiday quarter, sales jump

By Nandita Bose

NEW YORK (Reuters) - Target Corp reported profit in the holiday quarter that fell short of analyst estimates on Tuesday, hurt by investments aimed at improving the competitiveness of its online operations and stores, sending shares down 2 percent in premarket trading.

The big-box retailer has missed Wall Street's fourth-quarter profit expectations for the past two years.

Target is slated to have poured $1 billion of the previous year's profits into boosting sales, mainly by investing in online business and delivery options to take on Amazon.com Inc, according to analysts.

A decision to hike employee wages also weighed on profit margins in the holiday quarter. The company has focused on doubling the number of small-format stores, aggressively promoting products and keeping grocery prices low to compete with rivals like Wal-Mart Stores Inc, Amazon and supermarket chain Kroger Co. Excluding items like benefits from a recent cut in the corporate tax rate, Minneapolis-based Target earned a profit of $1.37 per share in the fourth quarter ended Feb.3, just short of the average estimate of $1.38.

 

Shares were down 2 percent at $73.65 in premarket trading.

The retailer's quarterly comparable sales performance beat expectations, rising 3.6 percent, its strongest performance since the first quarter of 2012. Analysts expected a 3.1 percent increase, according to Thomson Reuters I/B/E/S.

"Target's fourth quarter and full-year revenue growth indicates that its various investments, including online, stores, and employees, are paying off, with the compression in margins largely due to these expenses," said Moody's retail analyst Charlie O'Shea.

"The promotional environment, particularly during an elongated holiday season, had a bearing on margins as well," he said.

Online sales surged 29 percent and contributed 1.8 percentage points to overall comparable sales.

The holiday season tends to represent 20 percent to 40 percent of annual sales for many retailers.

Target forecast a low-single-digit increase in comparable sales for the first quarter compared to expectations of 2.36 percent, and adjusted earnings of $1.25 to $1.45 per share, with the average analyst estimate at $1.40 per share.

For the full year, the retailer expects adjusted earnings of $5.15 to $5.45 a share, compared to estimates for $5.27 per share.

(Editing by Arun Koyyur and Bernadette Baum)