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Target Reports Lower Third-Quarter Earnings

12/01/2013 07:00:00 PM Eastern

MINNEAPOLIS – Seasonal markdowns and higher expenses led to a 46 percent decline in Target’s thirdquarter profits, to $341 billion.

Total revenues edged up 1.9 percent to $17.3 billion for the three months, ended Nov. 2.

In the U.S., sales rose 2 percent to $16.6 billion, aided by strength in CE and the opening of nine new stores, while comp sales increased 0.9 percent on higher average basket size but fewer average transactions.

On an earnings call, merchandising and supply chain executive VP Kathryn Tesija said Target is enjoying “a really strong business in electronics right now,” led by headphones, Bluetooth speakers, mobile and video games, but described CE as one of the company’s “lower margin categories.”

Domestic gross margin slipped from 30.3 to 30 percent due to seasonal markdowns and the impact of “integrated growth strategies,” while the selling, general and administrative expenses (SG&A) expense rate increased from 20.5 percent to 21.2 percent as the discounter continued to invest in technology and supply chain to support its multichannel initiatives.

In a statement, chairman/president/ CEO Gregg Steinhafel said, “Target’s third-quarter financial results reflect continued strong execution in our U.S. segment in an environment where consumer spending remains constrained. As our focus shifts to the fourth quarter, we are intently focused on delivering outstanding merchandise, an easy, fun shopping experience and an unbeatable combination of everyday low prices, weekly ad discounts, 5 percent Redcard Rewards and pricematch policies throughout the U.S. and Canada.”

But Target, like Best Buy earlier this week, also warned of lower fourth-quarter earnings on what Janney, Montgomery, Scott analyst David Strasser described as weak trends for low- and mid-tier consumers and Walmart’s planned “promotional onslaught” this holiday season.