Target profit pinched by weak U.S. sales, Canadian expansion

Reuters

(Adds investor quote, Canadian details, byline, updates stockprice)

By Phil Wahba

Nov 21 (Reuters) - Discount chain Target Corp onThursday blamed what it called "constrained" U.S. consumerspending for a tepid rise in quarterly comparable sales, andlowered its full-year profit forecast as a Canadian expansionproved costlier than expected.

Shares fell 3.7 percent to $64 in premarket trading.

Target competes most directly with Wal-Mart Stores Inc and other discount retailers, which have all ramped uptheir promotions to win over reluctant U.S. shoppers.

Last week, Walmart U.S. reported a small decline incomparable sales for its third quarter, and forecast no growthfor the current quarter. It is starting holiday season salesearlier than ever to stave off rivals.

"It is challenging for retailers because things are OK outthere, they're not good," said Shawn Kravetz, president ofinvestment firm Esplanade Capital, which owns Target shares. "Soretailers are getting more aggressive. Everything's a bittighter."

An Ipsos poll for Reuters last week found more Americanswere planning to spend less this holiday season than last year,and demanding big bargains.

Target's third-quarter comparable sales were up 0.9 percent,while analysts estimated a rise of 1.3 percent, according toThomson Reuters I/B/E/S. Overall revenue rose 4 percent to$17.26 billion, below the Wall Street target of $17.36 billion.

Target, which offers a mix of basic goods and trendy appareland accessories, pared its full-year outlook in part because itsCanadian expansion this year has take longer to pay off thanexpected. Target opened its first Canadian stores in March afterannouncing the plan in early 2011.

The discounter expects its Canadian expenses to reduce thisyear's earnings by between 95 cents and $1.05 per share, up from82 cents previously.

Canadian sales totaled $333 million in the quarter, butgross profit margin was 14.8 percent of sales as it clearedunsold inventory. By comparison, the U.S. gross margin was 30percent.

Target Chief Executive Gregg Steinhafel said the company wasmore focused on improving its Canadian operations.

The retailer said it was looking to earn an adjusted profitper share of $4.59 to $4.69, compared with an earlier range of$4.70 to $4.90.

For the quarter ended Nov. 2, earnings fell to $341 million,or 54 cents per share, from $637 million, or 96 cents per share,a year earlier.

"Consumer spending remains constrained" in the UnitedStates, Steinhafel said in a statement.

Other retailers reported disappointing sales on Thursday. Dollar Tree Inc said comparable sales rose aless-than-expected 3.1 percent, and Sears Holdings Corp reported that U.S. comparable stores fell 4 percent.

Abercrombie & Fitch Co, struggling with thedefection of many teenage shoppers, forecast a double-digitpercentage decline in comparable sales in the holiday quarter. (Reporting by Phil Wahba in New York; Editing by Gerald E.McCormick and Jeffrey Benkoe)

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