Target Corp. posts strong year-end earnings, despite holiday dip.

Retail giant Target posted a less than stellar earnings report for the fourth quarter of 2011, but finished with a solid performance for the year overall.

In an earnings report released on February 23, Target Corporation reported fourth quarter net earnings of $981 million and full year net earnings of $2929 million. Compared to the same time last year, net earnings for the quarter were down 5.2 percent while the figure for the year in total stayed almost the same, going up 0.3 percent.

In terms of adjusted earnings per share, this translated to $1.45 a share for the quarter and $4.41 a share for the full year, representing increases of 8.3 percent and 14.3 percent respectively.

Despite the holiday season dip, Target exceeded many industry expectations, with its adjusted earnings per share of $1.45 well above the analyst’s projected estimate of $1.39. Target outperformed competitor Wal-Mart whose earnings performance trailed industry estimates as their aggressively low pricing hurt profit margins in the fourth quarter.

Chairman, president and chief executive officer of Target Corporation Gregg Steinhafel characterized the year as a successful one, in the face of considerable difficulty. “Target generated strong financial performance in 2011, overcoming sluggish economic growth, restrained consumer spending and an intensely promotional holiday season,” said Steinhafel in a press release. “For the full year, our U.S. businesses generated 14.3 percent growth in adjusted earnings per share, and we experienced our strongest growth in comparable-store sales since 2007.”

However, Steinhafel acknowledged the dip in performance into the weeks leading up to the holiday season. In a conference call with investors, he said the comparable store sales increased 2.2 percent which was below their expectations entering the quarter. “This shortfall was concentrated in the peak of the holiday season, as promotional activity throughout retail was exceptionally intense, and we chose to maintain an appropriate balance between driving sales and profitability,” said Steinhafel.

Executive vice president of merchandising Kathee Tesija also focused on the affect of high competition in promotional activity during the holiday season. “Research indicates that across retail, two out of three holiday season purchases in gift giving categories were on some sort of promotion, and these promotional discounts were significant, ranging from 25 percent in some categories to more than 50 percent in others,” said Tesija.

Target’s sales growth during the year was helped by a strong showing in grocery and credit card sales. As part of their “P-Fresh” initiative, the company remodeled nearly 400 stores in 2011 to add food and groceries, a main driver of traffic to the stores. Customer rewards initiatives such as the “5 percent Rewards” and the “REDCard Free Shipping” programs also helped to increase sales throughout the year.

The total earnings were also impacted by the companies expected expenses related to their expansion into Canada. Start-up and depreciation costs due to the expansion totaled $40 million for the quarter and $122 million for the year before interest and depreciation. Target expects to open its first Canadian stores in early 2013.

-Omar Bilal Akhtar

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