Target Earnings Top Forecasts, Despite Holiday Weakness

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Discount retail chain Target reported quarterly earnings and revenue Wednesday that topped Wall Street's expectations for the holiday quarter, despite heavy discounting and consumer caution.

After the earnings announcement, the company's shares initially rose in pre-market trading, but shares have since given up their gains on investor concern over Target's ability to reach its forecast, given its large-scale expansion plans in Canada. (Click here to track the company's shares following the report.) The discount retailer plans to open its first store in Canada this year, and eventually expand to 124 stores.

Net income was $961 million, or $1.47 a share, down from $981 million, or $1.45 a share. Despite the profit dip, net income per share rose because Target had fewer shares outstanding in the latest period.

Excluding expenses related to investments in Target's Canadian market entry, the company earned $1.65 per share, up from $1.43 a share in the year-earlier period.

Revenue increased 7 percent to $22.73 billion from $21.29 billion a year ago.

The company's net income slide showed that sales of food and value-priced items only partially mitigated some weakness it saw when holiday shoppers held back from discretionary spending in an uncertain economy.

Target's holiday season included a disappointing showing for its collection of gifts sold in collaboration with high-end department store Neiman Marcus. The line of designer dresses, dishes and other products launched on Dec. 1, and Target sharply discounted the goods even before Christmas.

"November and December were both very tough months for Target, but they had a nice pick-up in January — a 3.1 percent increase, and earnings were pretty much right in line as well," said Patrick McKeever, a senior equity analyst at MKM Partners.

Wall Street had expected the discount chain to deliver earnings excluding items of $1.48 a share on $22.69 billion in revenue, according to a consensus estimate from Thomson Reuters.

"We're pleased with Target's fourth-quarter performance, particularly in the face of a highly promotional retail environment and continued consumer uncertainty," Gregg Steinhafel, chairman, president, and chief executive officer, said in a statement.

For fiscal 2013, the Company expects adjusted earnings per share of $4.85 to $5.05, a range that was above the $4.83 that analysts had been expecting, according to a consensus estimate from Thomson Reuters.

"Frankly, it's a little bit light of where I was thinking it would be," said McKeever about Target's outlook. "They don't make any comments on sales so all ears will be on what they say about February (during the earnings call)."

During the current quarter, Target forecast adjusted earnings per share of $1.10 to $1.20, which was higher than the $1.05 that Wall Street had forecast, according to Thomson Reuters.

After Wal-Mart Stores said its February sales got off to a slower start than usual due in large part to delayed income tax refunds, investors will be looking to Target's report to gauge the health of the U.S. consumer, who has been stung by higher gas prices and the payroll tax hike.