Target Q3 earnings decline as Canadian segment sees lower-than-expected results, but U.S. segment shows strength

Company expects better results from Canadian stores in 2014

MINNEAPOLIS — Target Corp. posted sales of $17.3 billion in third-quarter 2013, a 4% increase over the same period last year, and a $341 million profit, down by 46.4% from a year ago, the mass merchandise retailer said Thursday.

The results from the quarter reflected a earnings-per-share dilution of 29 cents related to the chain's new Canadian segment. Same-store sales in the U.S. segment grew by 0.9%, near the low end of the company's fiscal 2013 guidance, while total sales were $16.9 billion, up 2% from third-quarter 2012's $16.6 billion.

The Beauty Concierge program, which the chain recently rolled out to 95 new stores for a total of nearly 300 throughout the chain, has helped sales in the beauty and personal care category, exceeding sales goals in cosmetics, skin care and hair care. Need-based categories like food and health care have seen growth that outpaces the overall same-store sales growth for the chain. As the holiday shopping season approaches, the company expects a highly competitive, promotional environment.

"Target's third-quarter financial results reflect continued strong execution of our U.S. segment in an environment where consumer spending remains constrained," Target chairman, president and CEO Gregg Steinhafel said.

In a conference call with investment bank analysts Thursday morning to discuss the results, Steinhafel said the company expected better results from the Canadian segment in 2014. "While initial sales and profits in Canada have not met our expectations, we remain confident about the long term," Steinhafel said. He also noted that Canadian stores opened early on had seen much stronger sales than those more recently opened. "It's still very, very early, but we like what we see in some of those early-cycle stores," he said. Target expects to reach its goal of 124 Target Canada stores in operation by the end of the year.

The chain's digital channel has seen strong growth as well. Cartwheel, part of its mobile app, has nearly 3 million users, most of whom access it exclusively on their mobile devices and, according to the company, have saved $14 million since it was launched about six months ago. Meanwhile, digital traffic has seen double-digit growth, while mobile traffic has seen growth in the triple digits, EVP merchandising and supply chain Kathryn Tesija said during the call.

In late September, Target rolled out a subscription service that allows customers to order baby items on a regular schedule, and the company plans to expand the service to include such items as coffee, paper towels, toilet paper and personal care products. A newly improved baby products section, which the chain was recently testing in the Chicago area, will also be rolled out to 20 stores around the country. Meanwhile, Target Ticket, an online DVD rental and movie streaming service, has seen millions of page views and new account signups that exceeded the company's expectations, Tesija said.

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