Target's 1Q profit drops 26 pct. on weak sales

NEW YORK – Target Corp. reported a 26 percent drop in first-quarter profit as cool temperatures and financial pressures limited customers' appetite for spending.

The company, based in Minneapolis, also cut its annual profit outlook, sending its stock down in premarket trading.

Target is the latest in a string of companies including rival Wal-Mart Stores Inc. that underscore how weather and other pressures have squeezed business in the first couple months of the year.

Still, Target, whose sales growth has been uneven since the recession, remains confident in its strategies to attract shoppers.

Target has reached out to customers with two big growth initiatives. It has been offering a larger selection of food and also a program, started in 2010, that gives shoppers a 5 percent discount when they pay with Target-branded credit and debit cards.

At the same time, Target continues to team up with new designers for limited-time partnerships. Earlier this month, Target announced its latest designer collaboration, with Phillip Lim. The collection is due out in September.

Last year, Target expanded into urban markets using smaller versions of its big-box stores in Seattle, Los Angeles and Chicago.

Target also started to expand into Canada earlier this year, its first foray outside the U.S. The company is opening the stores in waves that should add up to about 125 stores at locations once owned by Canadian retailer Zellers by the end of the year. During the first quarter, it opened 24 stores in Canada.

"Target's first- quarter earnings were below expectations as a result of softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories," Gregg Steinhafel, chairman, president and CEO of Target, said in a statement. "While we are disappointed in our first-quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels, and CityTarget, that will drive Target's long-term growth."

Target said it earned $498 million, or 77 cents per share, for the three months ended May 4. That compares with $697 million, or $1.04 per share, a year earlier.

Excluding items related to its Canadian expansion and retirement of certain debt, the company earned $1.05 per share.

Sales rose 1 percent to $16.71 billion.

Revenue at stores open at least a year slipped 0.6 percent as the number of transactions fell 1.9 percent. That's considered an important measure of retail performance because it strips out the effect of stores that open or close during the year.

Analysts had expected earnings of 95 cents per share on revenue of $16.82 billion.

Target expects that adjusted earnings per share will be in a range between $1.09 and $1.19 for the current quarter.

For the full year, the company now expects $4.70 per share to $4.90 per share. That's down from its original guidance of $4.85 per share to $5.05 per share.

Analysts had forecast $1.11 per share for the second quarter and $4.63 per share for the year.

The results come a week after Wal-Mart, the world's largest retailer, reported that its first-quarter profit edged up just slightly, and the company struggled with a sales malaise in its namesake business.

Revenue at stores open at least year at its namesake U.S. business dropped 1.4 percent, the first decline since the second quarter of 2011.

Wal-Mart also offered a quarterly profit outlook that came below Wall Street's projections. Wal-Mart blamed a litany of factors affecting its budget-conscious customers, including a payroll tax increase, delayed tax refunds, job worries and bad weather. The company did say that sales this month have been rebounding.

Target's stock dropped more than 2 percent to $69.75 per share in premarket trading.

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