(Updates with quote from analyst in fourth paragraph.)
Feb. 23 (Bloomberg) -- Target Corp., the second-largest U.S. discount retailer, posted fourth-quarter earnings that exceeded some analysts’ estimates, helped by discount card initiatives and grocery sales.
Net income declined 5.2 percent to $981 million, or $1.45 a share, from $1.04 billion, or $1.45, a year earlier, the Minneapolis-based company said today in a statement. Excluding some items, profit totaled $1.49. Analysts projected $1.39, the average of estimates compiled by Bloomberg.
Chief Executive Officer Gregg Steinhafel has maintained sales growth by adding fresh groceries to stores and enticing shoppers to spend more with company-issued credit and debit cards that offer discounts. Those initiatives have also narrowed profit margins.
“They have sustainable growth in front of them,” Matt Arnold, an analyst at Edward Jones & Co. in Des Peres, Missouri, said in an interview. He recommends buying the shares.
Gross margin at the company’s retail segment narrowed for the sixth straight quarter. Fourth-quarter gross margin, the percentage of sales left after subtracting the cost of goods sold, shrank 0.3 percentage point to 28.4 percent. Analysts projected 28.8 percent, the average of 10 estimates.
Target rose 2.9 percent to $54.50 at the close in New York. The shares declined 15 percent last year.
Earnings per share for this year, excluding costs related to its expansion into Canada, will be $4.55 to $4.75. Jeffrey Klinefelter, an analyst for Piper Jaffray & Co., projected $4.74.
Second Quarter Sales
Same-store sales, a key measure of a retailer’s growth because only established stores are counted, may rise about 4 percent this quarter after a gain of 2.2 percent last quarter, the company said.
The company’s credit card unit that boosted earnings over the past year became less profitable. Income at the segment declined 35 percent to $98 million from $151 million a year ago. Bad debt expense, which had been falling, rose to $87 million from $83 million. The retailer suspended plans to sell the division last month, and will start looking for potential partners later this year.
The percentage of sales being made through its REDCard rewards program that offers a 5 percent discounts on most purchases rose to 11 percent from 7.4 percent a year ago.
Wal-Mart Stores Inc., the world’s largest retailer, posted fourth-quarter profit on Feb. 21 that trailed estimates as a focus on low prices narrowed margins. The shares sank the most in six months.
(Target held a conference call on the results at 10:30 a.m. New York time. To listen, visit TGT US <EQUITY> EVT <GO>.)
--Editors: James Callan, Robin Ajello
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