Canada proves costly, but Target’s U.S. comps solid
MINNEAPOLIS — Target’s better-than-expected 3.8% fourth-quarter same-store sales increase softened the sting of a massive $5.1 billion charge the company said it would take related to its retreat from Canada.
Target’s fourth-quarter sales from continuing operations, essentially the company’s U.S. stores, increased 4.1% to $21.8 billion and same store sales increased 3.8%. Operating profits increased 13.4% to $1.6 billion as gross margins expanded to 28.5% from 27.6%. Gross margins benefitted from the company annualizing clearing activity following the data breach that occurred prior to the 2013 holiday season. The margins expansion was more than enough to offset an uptick in expenses, which increased to 18.6% from 18.4% of sales, the company said reflected higher marketing, technology and incentive expenses.
“We’re pleased with our fourth quarter financial results, which were driven by better-than-expected sales and particularly strong performance in our signature categories (of) style, baby, kids and wellness,” said Target chairman and CEO Brian Cornell. “We’re seeing early momentum in our efforts to transform Target, and our team is entering the new fiscal year with a singular focus on continuing to differentiate our merchandise assortment and shopping experience while controlling costs by reducing complexity and simplifying the way we work.”
How much “transforming” is needed at Target is subject to debate, considering the company has a well-established strategy of differentiation embodied in its, “expect more, pay less,” brand promise. And when it comes to a reduction of complexity, Target is in the same boat as many other retailers who are challenged by the need to execute omnichannel initiatives which created new expectations for employees at store level where labor budgets face new pressures from wage growth.
In reference to the ongoing differentiation strategy and unspecified cost control and simplification strategies, Cornell said, “we’re confident that these efforts will allow us to grow our earnings while returning cash to our shareholders in 2015 and beyond, driving improvements in Target’s return on invested capital and creating long-term value for our shareholders.”
Target said its fourth-quarter earnings per share increased 14.9% to $1.50, but that figure is adjusted to exclude a charge of $5.1 billion which resulted in an earnings per share loss of $5.59. The company did not provide a sales outlook for the first quarter, but did say earnings per share will range from 95 cents to $1.05, compared to 92 cents last year.
The company said it would provide a full year outlook when it hosts a meeting for investors on March 3.