Target Corp. (TGT) Misses Q1 EPS by 1c; Cuts FY14 EPS View

Target Corp. (NYSE: TGT) reported Q1 EPS of $0.70, $0.01 worse than the analyst estimate of $0.71. Revenue for the quarter came in at $17.05 billion versus the consensus estimate of $17.02 billion.

U.S. Segment Results

In first quarter 2014, sales increased 0.2 percent to $16.7 billion from $16.6 billion last year, reflecting the contribution from new stores partially offset by a (0.3) percent decrease in comparable sales. Segment earnings before interest expense and income taxes (EBIT) were $1,072 million in first quarter 2014, a decrease of 13.5 percent from $1,239 million in 2013.

First quarter EBITDA and EBIT margin rates were 9.5 percent and 6.4 percent, respectively, compared with 10.4 percent and 7.5 percent in the U.S. Segment in 2013. First quarter gross margin rate was 29.5 percent compared with 30.7 percent in 2013, driven primarily by additional promotional markdowns this year. First quarter SG&A expense rate was 20.0 percent in 2014 compared with 20.3 percent in the U.S. Segment in 2013. This decrease reflects disciplined control of expenses across the organization, including the benefit from Target’s expense optimization efforts, partially offset by a smaller contribution from the credit card portfolio, which raised the SG&A rate by approximately 0.2 percentage points.

Canadian Segment Results

In first quarter 2014, the Canadian Segment generated sales of $393 million, compared with $86 million in first quarter 2013 when Target opened its first 24 Canadian stores. Segment EBIT was $(211) million in the first quarter 2014 compared with $(205) million in 2013.

First quarter 2014 gross margin rate of 18.7 percent reflects the continued impact of efforts to clear excess inventory, including long lead-time receipts. This compares to first quarter 2013 gross margin rate of 38.4 percent, which benefitted from a lack of clearance markdowns due to the short time stores had been open. SG&A expense rate of 55.4 percent in first quarter 2014 compares with 223.9 percent last year, reflecting increased scale in the Canadian Segment and pre-opening costs in last year’s results.

Target expects Q2 2014 EPS of $0.85 - $1.00, versus the consensus of $1.03.

Target now sees FY2014 EPS of $3.60 - $3.90, versus prior guidance of $3.85 - $4.15 and the consensus of $3.98.

For earnings history and earnings-related data on Target Corp. (TGT) click here.

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