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Target First-Quarter Profit Trails Estimates

Target last month said profit in the quarter would be less than it previously forecast. Photographer: Daniel Acker/Bloomberg
Target last month said profit in the quarter would be less than it previously forecast. Photographer: Daniel Acker/Bloomberg

May 22 (Bloomberg) -- Target Corp., the second-largest U.S. discount retailer, said first-quarter earnings fell 29 percent and cut its forecast for profit this year as higher taxes and cooler temperatures hampered sales.

Net income in the quarter ended May 4 dropped to $498 million, or 77 cents a share, from $697 million, or $1.04, a year earlier, the Minneapolis-based company said today in a statement. Analysts projected 84 cents, the average of 17 estimates compiled by Bloomberg. Sales rose 1 percent to $16.7 billion, trailing the $16.8 billion average estimate.

U.S. retailers have been struggling as an increase in Social Security taxes takes a larger bite out of shoppers’ paychecks while colder-than-normal temperatures hurt sales of spring apparel. Wal-Mart Stores Inc. last week forecast profit in the current quarter that was less than analysts estimated.

“There’s definitely a weather component, but there’s also a lower-end consumer component,” David Strasser, a New York-based analyst for Janney Montgomery Scott LLC, said in an interview. “These retailers don’t miss collectively when their consumers are doing well.”

Target said profit per share, excluding losses from the early retirement of debt and the company’s expansion in Canada as well as gains from the sale of the retailer’s credit card receivables, will be $4.70 to $4.90 this year, down from a previous forecast of $4.85 to $5.05. Analysts estimated $4.83.

The shares fell 4 percent to $68.40 at the close in New York. Target has advanced 16 percent this year, compared with a 13 percent gain for Wal-Mart and 16 percent increase for the Standard & Poor’s 500 Index.

Traffic Challenges

“While we expect traffic will continue to be challenging given our near-term outlook for the economy and the consumer, we don’t expect to continue to see traffic declines of the magnitude we saw in the first quarter,” Chief Financial Officer John Mulligan said on a conference call with analysts today.

The average temperature of Target’s store base, weighted by state, was 5.1 degrees Fahrenheit (2.8 degrees Celsius) colder than a year earlier in the first quarter, Sean Naughton, an analyst at Piper Jaffray Cos. in Minneapolis, said in a note May 14. That likely hurt sales of apparel, seasonal home goods and sporting goods. Target said U.S. comparable-store sales fell 0.6 percent in the first quarter.

Retailers’ sales also have been hurt by a 2 percentage-point increase in the payroll tax. They also were slowed by tax returns that were delayed because of forms that were shipped late and additional, federally mandated fraud scrutiny.

To contact the reporter on this story: Renee Dudley in New York at rdudley6@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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