Target's 2Q profit falls on shopper caution

NEW YORK • Target Corp. muted its annual profit forecast Wednesday after reporting a 13 percent drop in second-quarter profits as the cheap-chic retailer deals with cautious shoppers.

Shares of the company fell in premarket trading.

Target is the latest in a string of companies, including rival Wal-Mart Stores Inc. , that have lowered their business expectations as they contend with an uncertain economy.

"For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures," Gregg Steinhafel, Target's chairman, president and CEO, said in a statement.

While jobs are easier to get and the housing market is gaining momentum, these improvements have not been enough to get most Americans to spend freely. Americans are facing stagnant wage growth.

On top of that, Americans continue to struggle with a 2 percentage-point increase in the Social Security payroll tax since Jan. 1. That means take-home pay for a household earning $50,000 a year has been sliced by $1,000.

Target said it earned $611 million, or 95 cents per share, in the quarter ended Aug. 3. That compares with $704 million, or $1.06 per share, a year earlier.

Excluding certain items related to its expansion into Canada, the retailer earned $1.19 per share.

Total revenue reached $17.12 billion, up 2 percent from $16.45 billion in the quarter.

Analysts expected earnings of 96 cents per share on revenue of $17.28 billion, according to FactSet.

Revenue at stores open at least a year rose 1.2 percent, below the 1.9 percent analysts had expected.

Target, whose sales growth has been uneven since the recession, has been seeking ways to pull in new shoppers.

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. Next month, Target is set to launch its latest designer collaboration, with Phillip Lim.

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.

Steinhafel said in a statement that Target is continuing to learn, adjust and refine operations in Canada as it prepares to open an additional 56 stores by the end of the year.

But as the latest results show, Target needs to do even more to pull in shoppers, given a challenging environment.

For the current quarter, Target expects earnings per share to be in the range of 80 cents to 90 cents. Analysts projected 89 cents per share, according to FactSet.

For the full year, Target now expects earnings per share to be at the low end of its previous guidance of $4.70 to $4.90. In May, the company trimmed its projections from the original outlook of $4.85 per share to $5.05, citing cautious shoppers.

Analysts expect $4.29 per share.

Shares fell 2 percent, or $1.36 per share, to $66.60 in pre-market trading.

Last week, Wal-Mart cut its annual profit and revenue outlook for the year after reporting second-quarter results that missed Wall Street estimates.

U.S. Wal-Mart stores, which account for 59 percent of the company's total sales, posted the second straight quarter of declines in a key revenue figure after six consecutive quarters of increases. Revenue at stores open at least a year fell 0.3 percent.