Sales soft and earnings weaker

Fourth quarter earnings at Target plunged 34%, and came in at a weaker-than-expected 81 cents a share versus $1.23 a year ago, as a broad range of negative economic forces conspired against the company’s profitability. Net income for the quarter declined to $609 million from slightly more than $1 billion in the fourth quarter a year ago, and fourth quarter sales declined 1.6% to $19 billion, as same-store sales declined by 5.9%.

Full-year retail sales increased 2.3% to nearly $63 billion, largely as a result of the addition of 91 new stores, since same-store sales for the year declined 2.9%. Profits were also negatively affected by Target’s credit card business, which incurred a $135 million pre-tax loss in the fourth quarter compared to a $189 million profit in the fourth quarter the prior year. The loss was due to the company’s decision to set aside an additional $245 million in the fourth quarter for doubtful accounts related to rising delinquencies and charge off trends among credit card customers. For the full year, Target added $440 million to the allowance for doubtful accounts.

“Our financial results for both the fourth quarter and 2008 fiscal year reflect the impact of unprecedented economic conditions on both of our business segments,” said Target, chairman, president and CEO Gregg Steinhafel. “In 2009, we are focused on continuing to grow our market share profitably, offering even more compelling prices on quality products in combination with a superior shopping experience.”

Fourth-quarter profits were also hindered by reduction in gross margins as Target’s experience faster growth in food and consumables businesses, while on a positive note, the company managed expenses well, as fourth quarter selling, general and administrative expense was reduced by $27 million. Analysts had expected the company to report fourth quarter earnings of 83 cents a share, a figure that had been lowered in recent weeks from the 86 cents a share consensus estimate that existed on Feb. 5. At that time, the company advised analysts that their estimates were still too high even though the company had indicated it would take a 3-cents-a-share charge against fourth quarter earnings related to job cuts and a distribution center closing that was announced on Jan. 27.