For Target, weak fourth quarter is old news

  • Article by: THOMAS LEE , Star Tribune
  • Updated: February 23, 2012 - 10:25 PM

After a strong January, the retailer expects a healthy same-store sales gain in February.

Target Corp. is eager to move on.

That's the message the Minneapolis-based retailer conveyed to Wall Street on Thursday after the company reported less-than-stellar fourth-quarter sales and profits.

For the last three months of 2011, Target said sales rose 3.3 percent to $20.9 billion, but sales at stores open for at least a year increased a relatively poor 2.2 percent because of weak holiday sales. Profits fell 5.2 percent to $981 million from $1.03 billion during the same period a year ago.

All in all, though, the company said it was happy with 2011. Sales grew a healthy 4.1 percent to $68.5 billion, though profits were flat at $2.92 billion.

"We're pleased with Target's full-year financial results, which reflect the ability of our teams to manage our businesses in an up-and-down environment," CEO Gregg Steinhafel told analysts during a conference call.

Target stock rose $1.53, or nearly 3 percent, to close Thursday at $54.50.

Target officials acknowledged the retailer didn't fare well in the key holiday shopping season, particularly in the three weeks of late November and early December when retailers engaged in a fierce discounting war. The company estimated its sales fell about 1 percent in that period.

Steinhafel also admitted that Target.com's problems, which began with its Missoni launch in September, hurt overall sales. While the website attracted consumers, glitches prevented those shoppers from purchasing items, he said.

"We're very encouraged about the fact that the guests love coming to the website," Steinhafel said. "What we're disappointed in was what they experienced when they got there. The [sales] conversion rates were not to where they had been in the past."

With that said, Steinhafel argued that the holiday shopping period was somewhat of an anomaly because of the heavy discounting. Target is willing to accept lower sales to protect its profitability going forward, he said.

"We think that's a good trade-off to make because we're not going to get into this race to the bottom and give [merchandise] away at all costs," Steinhafel said. "We don't think it's healthy over the long term."

Steinhafel noted Target is off to a strong start in 2012. Same-store sales last month jumped 4.3 percent and the company expects to exceed 4 percent again in February.

For the year, Target expects to generate profits between $4.55 to $4.75 per share compared with $4.28 in 2011.

Some analysts like what they see. Charles Grom, an analyst with Deutsche Bank Securities, upgraded his rating on Target stock to "buy" from "hold." He also set a price target of $64 for Target shares.

"We think Target is long overdue to 'get off the mat' after a 2-year-plus hiatus," Grom said.

This year, Target plans to open its smaller CityTarget formats and launch its Shops at Target concept, which features a rotating cast of five boutiques across the country selling exclusive merchandise in Targets stores. Also on tap are Michael Graves' final collection and partnership with Julie Andrews and Walt Disney.

Thomas Lee • 612-673-4113

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