Target reported earnings Tuesday and they seemed to leave more questions than answers.
Target (TGT) Tuesday reported net earnings of $1,028 million for Q4 ended February 2, 2008, a thirteen-week period, compared with $1,119 million in the fourth quarter ended February 3, 2007, a fourteen-week period. Earnings per share in the fourth quarter decreased 4.7 percent to $1.23 from $1.29 in the same period a year ago. this despite the fact the company repurchased approximately 26.5 million shares of its common stock at an average price of $54.64, for a total investment of $1.45 billion in the quarter.
Monday I posted that Target’s unreasonable return policy was a main reason for people refraining from buying clothing and other items that are prone to be returned or exchanged. The flood of emails I received led me here and illustrate that this is becoming a large issue for Target. Now when the consumer feels pinched, they will watch every penny and take far fewer chances with their dollars. Buying items from Target with this policy now entails more risk than folks want to take.
Any correlation to results? While we heard Wal-Mart (WMT) being optimistic about clothing, Target has seen a dramatic drop in sales. Once the company’s strength, it has become a drag. It isn’t just the clothing sales loss that hurts. If people are not going there for clothing, they are also not buying all the ancillary items there either during the trip.
I listened to and then read the conference call and one thing stuck out. While management said it was “pleased” with women’s results in apparel and “disappointed” in men’s, it was hard to quantify. We know earnings fell despite the huge repurchase so are they “pleased” against lowered expectations? It seemed like they wanted to put the blame on toys (an easy scape goat with the lead issues) but it just does not add up.
They also said they expect 7% EPS growth in the current FY. That will essentially be done through additional repurchases. I expect those to be significant in this spring, perhaps $5 billion for the year.
Disclosure (“none” means no position):Long WMT, none
