Target Joins Cold-Weather Woes in Profit Forecast CutMatt Townsend
Target Corp., the second-largest U.S. discount retailer, said first-quarter profit will be less than it previously forecast as cold weather hampered sales of spring merchandise.
Adjusted profit in the current quarter will be less than the low end of its forecast range of $1.10 to $1.20 a share, the Minneapolis-based company said today in a statement. The average of 10 analysts’ estimates compiled by Bloomberg was $1.11 a share when the statement was released.
Target, already struggling with a weaker consumer-spending environment that’s taking a toll on U.S. retailers, has been facing colder-than-normal temperatures that are hurting sales of spring merchandise. The retailer won’t be the last to be hit by the combination of the unsteady economy and the cooler weather, said Ken Perkins, president of researcher Retail Metrics.
“Target’s warning is just another example amongst many who have guided first-quarter earnings lower, and I would expect to see more,” Perkins, who’s based in Swampscott, Massachusetts, said today in an interview.
Target today maintained its forecast for full-year profit of $4.85 to $5.05 a share.
The shares fell 0.1 percent to $68.38 at the close in New York. Target has gained 16 percent this year, compared with a 10 percent increase for the Standard & Poor’s 500 Index.
While the weather often serves as an excuse for disappointing sales, retailers have a legitimate claim this year as temperatures have been colder than usual following an abnormally warm spring last year, Perkins said. North America had its warmest March in 50 years in 2012.
If it’s 50 degrees out, “you’re not going to be buying spring apparel and goods,” said Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis, who recommends buying Target shares.
Target said when it reported earnings for its fourth quarter, which ended Feb. 2, that higher payroll taxes and waning consumer confidence led to tepid sales. The company said today that same-store sales, which rose 0.4 percent in the fourth quarter, will be little changed in the current quarter.
Commerce Department figures released last week showed retail sales in the U.S. dropped 0.4 percent in March, the biggest decline since June. The sales data prompted economists to trim consumer-spending forecasts from what was projected to be the best quarter in two years.
Family Dollar Stores Inc. cut its profit forecast for this year earlier this month, saying cold temperatures and shoppers holding back on purchases had hurt results.
The sluggish spring shopping season might make retailers’ transition to summer goods even more painful than usual, Perkins said. Retailers, especially apparel chains, typically begin using discounts later this month to clear spring inventory and make room for their summer lines. If they have more goods to get rid of than normal, that means more discounting and a bigger hit to profit margins.
“The big question is how much they will have to slash prices,” Perkins said.