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Target Earnings Drop

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Target Corporation (TGT - Free Report) , the operator of general merchandise and food discount stores in the United States, posted fourth-quarter fiscal 2013 results. The company’s adjusted earnings of $1.30 per share dropped 21.2% from $1.65 in the year-ago quarter. This relates to results from U.S. operations only.

The quarterly earnings including U.S. and Canadian operations but excluding other one-time items came in at 90 cents a share, sharply down from $1.47 reported in the prior-year quarter. Analysts polled by Zacks had projected earnings of 85 cents a share for the quarter.

Management hinted that massive data breach hurt the company’s results. Target faced its worst security breach when information related to credit and debit card data of approximately 70 million customers were hacked.

Let’s Unveil the Picture

Total revenue dropped 5.3% to $21,516 million from the prior-year quarter and also fell short of the Zacks Consensus Estimate of $21,541 million. Sales for the U.S. segment, which now comprise of U.S. Retail and U.S. Credit Card segments after the sale of U.S. credit card portfolio in Mar 2013, came in at $20,893 million and fell 6.6% year-over-year.  

Minneapolis, Minnesota based company, Target, said that comparable-store sales for the quarter slipped 2.5% compared with 0.4% increase registered in the prior-year quarter. The number of transactions edged down 5.5%, however, the average transaction amount climbed 3.2% in the quarter.

Gross profit at the U.S. segment tumbled 7.1% to $5,769 million, whereas gross margin contracted 20 basis points to 27.6%. Segment operating income dipped 22.4% to $1,413 million, whereas operating margin shriveled 130 basis points to 6.8%.

Target’s credit card penetration increased 150 basis points to 10%, whereas debit card penetration expanded 390 basis points to 10.9% during the quarter. Total store REDcard penetration climbed to 20.9% from 15.5% in the year-ago quarter.

We believe Target’s P-fresh remodel program, 5% REDcard Rewards program and Price Match strategy will help in augmenting sales performance and continue to drive traffic. Moreover, in order to expand its global footprint, the company is eying Canadian market and is operating 124 general merchandise stores. Sales generated during the quarter were $623 million.

Target’s credit and debit cards penetration in Canada came in at 1.6% and 1.7%, respectively. Total store REDcard penetration came in at 3.2%.

Other Financial Details

During the quarter, Target did not buyback any shares but paid dividends of $272 million. In fiscal 2013, the company has bought back about 21.9 million shares at a price of $67.41, aggregating $1.47 billion, and paid dividends of $1 billion.

The company ended the quarter with cash and cash equivalents (including short-term investments of $3 million) of $695 million, long-term debt and other borrowings of $12,622 million and shareholders’ equity of $16,231 million.

Stores Update

Target, which competes with Costco Wholesale Corporation (COST - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) , currently operates 1,793 stores, of which 289 are general merchandise stores, 1,245 are expanded grocery assortment, 251 are SuperTarget stores and 8 are CityTarget stores.

Strolling Through Guidance

Target now projects adjusted earnings in the range of 60 cents to 75 cents a share for the first quarter and between $3.85 and $4.15 per share for fiscal 2014.

The current Zacks Consensus Estimates for the first quarter and fiscal 2014 are 90 cents and $4.34, respectively, which could witness a downward revision in the coming days.

Stock That Warrant a Look

Currently, Target holds a Zacks Rank #4 (Sell). Another stock that warrants a look is The Hain Celestial Group, Inc. (HAIN - Free Report) carrying with a Zacks Rank #2 (Buy).

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