Target’s 2Q profits solid, but outlook softens

Target produced solid profits on tepid second quarter sales growth butjoined the growing list of retailers to express reservations about the health of the consumer during the back half of the year.

Target said its U.S. stores produced a 1.2% same store sales increase during the second quarter ended August 3, and total sales increased 2.4% to $16.8 billion from $16.5 billion during second quarter last year. Operating profits grew at a meager 0.4% rate to $1.33 billion from $1.32 billion.

Sales at the 68 stores Target now operates in Canada following entry into that market earlier this year totaled $275 million.

Total company profits, excluding start-up cost related to entry into Canada, increase 6.1% to $1.19 from $1.12 during the second quarter last year. Including the costs related to Canada, earnings declined to $611 million, or 95 cents a share, compared to $704 million, or $1.06 a share last year.

“Target’s second quarter financial results benefited from disciplined execution of our strategy and strong expense control, offsetting softer-than-expected sales,” said Gregg Steinhafel, Target’s chairman, president CEO. “For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures. In Canada, where we are only five months into our market launch, we continue to learn, adjust and refine operations in our existing stores as we prepare to open another 56 stores by year-end.”

Concerns regarding the consumer spending outlook prompted the company to forecast full year adjusted profits toward the low end of earlier guidance that ranged from $4.70 to $4.90.

Target ended the quarter with 1,788 stores in the U.S. and 68 stores in Canada.