Target Misses Estimates, Boosts Share Buybacks

Discount retail giant Target Corp. (TGT) said Tuesday Q3 earnings fell 4.5% despite a 9.3% jump in revenue, due in part to soft sales on its higher-margin items, falling well short of analyst consensus estimates. Net profit fell to $483 million ($0.56/share) from $506 million ($0.59/share) a year ago. Revenue climbed to $14.84 billion from $13.57 billion. Analysts polled by Reuters had expected the company to earn $0.62/share on revenue of $14.83 billion. "Our third quarter earnings were disappointing due to soft sales in our higher margin categories, leading to lower-than-expected gross margin in our core retail operations," CEO Bob Ulrich told investors. "However, we have not observed any meaningful change in the intensity of the competitive environment and continue to believe that we are well-positioned to operate in a variety of sales environments going forward," (full earnings call transcript later today).

Target also announced a $10 billion share repurchase program that replaces a previous $8 billion program, to be "partially funded by an increase in the use of debt in our capital structure." At recent share price levels, this represents more than 20% of outstanding shares (press release). One analyst thought things could have been worse: "It's turned out they're a bit more dependent on the housing market than investors initially thought," Rochdale Investment's David Abella said. "It's definitely become a tougher market. I don't think any retailers yet see the light at the end of the tunnel," (Bloomberg). Target shares are down 3.3% to $52.10 in pre-market trading.

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