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Target Posts Soft Q4, Readies For Price War

Target suffered disappointment in a fourth quarter that only just achieved the low end of its expectations and will invest in lower prices not long after reports emerged that Walmart is experimenting with a new pricing model.

For the quarter ended January 28, net earnings were $817 million, or $1.45 per diluted share, versus $1.43 billion, or $2.32 per diluted share, in the year-earlier period. Earnings from continuing operations were $821 million, or $1.46 per diluted share, versus $1.42 billion, or $2.31 per diluted share, in the period a year prior. Adjusted earnings per share were $1.45 versus $1.52 in the year-before quarter.

Adjusted earnings per share fell six cents below an analyst average estimate published by MarketBeat.

Fourth quarter comparable sales decreased 1.5%, with store comps down 3.3%. A 0.2% increase in transactions and a 1.6% decrease in average transaction amount contributed to the 1.5% overall comp decrease. Digital channel comps increased 34%, contributing 1.8 percentage points to comparable sales growth. Fourth quarter comparable sales growth in Target’s focus signature categories, including home, came in above total comps by almost three percentage points, according to the company. Total sales were $20.69 billion versus $21.63 billion in the quarter a year previous.

For the full fiscal year, net earnings were $2.74 billion, or $4.70 per diluted share, versus $3.36 billion, or $5.31 per diluted share, in the year earlier period. Earnings from continuing operations were $2.67 billion, or $4.58 per diluted share, versus $3.32 billion, or $5.25 per diluted share, in the period a year prior. Adjusted earnings per share were $5.01 versus $4.69 in the year before.

Comparable store sales decreased 0.5% in the fiscal year, with number of transactions down 0.8% and average transaction amount up 0.3%. Total sales were $69.5 billion versus $73.79 billion in the fiscal year previous.

“Our fourth quarter results reflect the impact of rapidly changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores,” said Brian Cornell, Target chairman and CEO. “At our meeting with the financial community, we will provide detail on the meaningful investments we’re making in our business and financial model, which will position Target for long-term, sustainable growth in this new era in retail. We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years. In addition, we will invest in lower gross margins to ensure we are clearly and competitively priced every day. While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best-position Target for continued success over the long term.”

Target finished the fiscal year with 1,802 stores.