Target Corp., the second-largest U.S. discount retailer, said first-quarter earnings fell 29 percent and cut its forecast for profit this year as higher taxes and cooler temperatures hampered sales.
Net income in the quarter ended May 4 dropped to $498 million, or 77 cents a share, from $697 million, or $1.04, a year earlier, the Minneapolis-based company said in a statement. Analysts had projected 84 cents, the average of 17 estimates compiled by Bloomberg. Sales rose 1 percent to $16.7 billion, trailing the $16.8 billion average estimate.
U.S. retailers have been struggling as an increase in Social Security taxes takes a larger bite out of shoppers’ paychecks while colder-than-normal temperatures hurt sales of spring apparel. Wal-Mart Stores Inc. last week forecast profit in the current quarter that was less than analysts estimated.
“There’s definitely a weather component, but there’s also a lower-end consumer component,” said David Strasser, a New York-based analyst for Janney Montgomery Scott LLC. “These retailers don’t miss collectively when their consumers are doing well.”
Target said profit per share, excluding losses from the early retirement of debt and the company’s expansion in Canada as well as gains from the sale of the retailer’s credit card receivables, will be $4.70 to $4.90 this year, down from a previous forecast of $4.85 to $5.05. Analysts estimated $4.83.
The shares fell 4 percent to $68.40. Target has advanced 16 percent this year, compared with a 13 percent gain for Walmart and 16 percent increase for the Standard & Poor’s 500 index.
“While we expect traffic will continue to be challenging given our near-term outlook for the economy and the consumer, we don’t expect to continue to see traffic declines of the magnitude we saw in the first quarter,” Chief Financial Officer John Mulligan said on a conference call with analysts Wednesday.
The average temperature of Target’s store base, weighted by state, was 5.1 degrees Fahrenheit colder than a year earlier in the first quarter, wrote Sean Naughton, an analyst at Piper Jaffray Cos. in Minneapolis, in a note May 14 to clients. That likely hurt sales of apparel, seasonal home goods and sporting goods. Target said U.S. comparable-store sales fell 0.6 percent in the first quarter.
Retailers’ sales also have been hurt by a 2 percentage-point increase in the payroll tax. They also were slowed by tax returns that were delayed because of forms that were shipped late and additional, federally mandated fraud scrutiny.
Target has reached out to customers with two big growth initiatives. It has been offering a larger selection of food and also a program, started in 2010, that gives shoppers a 5 percent discount when they pay with Target-branded credit and debit cards.
At the same time, Target continues to team up with new designers for limited-time partnerships. Earlier this month, Target announced its latest designer collaboration, with Phillip Lim. The collection is due out in September.
Last year, Target expanded into urban markets using smaller versions of its big-box stores in Seattle, Los Angeles and Chicago.
Target also started to expand into Canada earlier this year, its first foray outside the U.S. The company is opening the stores in waves that should add up to about 125 stores at locations once owned by Canadian retailer Zellers by the end of the year. During the first quarter, it opened 24 stores in Canada.
“Target’s first-quarter earnings were below expectations as a result of softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories,” Gregg Steinhafel, chairman, president and CEO, said in a statement. “While we are disappointed in our first-quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels, and CityTarget, that will drive Target’s long-term growth.”
Excluding items related to its Canadian expansion and retirement of certain debt, the company earned $1.05 per share.
Revenue at stores open at least a year slipped 0.6 percent as the number of transactions fell 1.9 percent. That’s considered an important measure of retail performance because it strips out the effect of stores that open or close during the year.
The Associated Press contributed to this report.