US retailer Target Corp. has booked lower half-year profits on the back the cost of entering Canada, while competition in that market has also affected margins.
Target also said it expects full-year earnings per share to “be at the low end” of its forecast of US$4.70-4.90 a share.
The retailer posted a 20.8% fall in net earnings to US$1.11bn for the six months to 3 August. Target reported an operating loss of $169m from its Canadian operations in the second quarter. Gross margin from its Canadian stores was 33.2% in the first half but 31.6% in the quarter.
The company’s sales were up 2.5% at $33.82bn. Comparable-store sales in the US increased 0.3% in the first half but growth accelerated to 1.2% in the second quarter.
Chairman, president and CEO Gregg Steinhafel said: “For the balance of this year, our US outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures. In Canada, where we are only five months into our market launch, we continue to learn, adjust and refine operations in our existing stores as we prepare to open another 56 stores by year-end.”
One analyst said the “much larger-than-expected loss” from Target’s Canadian business “significantly increase[s] the investment risk”.
Mark Miller of William Blair & Co. reduced his rating on Target’s shares to ‘under-perform’.
“The domestic retail business can no longer be counted on for steady profit growth, as its competitive advantages are being eroded. Two, significant underperformance of the Canada stores, after a solid grand opening, puts incremental pressure on earnings and creates greater uncertainty for whether this can be an incremental leg of growth for Target,” he wrote in a note to clients.
Target’s shares closed down 3.61% at $65.50.
Click here for the full statement from Target.