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Target Profits Plummet, Stocks Follow Suit

Target disappointed investors this morning with first-quarter earnings significantly below expectations: year-on-year, the quarter’s net earnings fell from $697 million to $498 million, a drop of 28.5%.

As recently as April, Target had predicted that earnings would fall from $1.04 last year to 87 cents per share. The retailer failed to meet even its own benchmarks, falling 5% to 77 cents per share.

On the slightly brighter side, sales rose 0.5%–from $16.5 billion in last year’s first quarter to $16.6 billion in this one. Unfortunately, same-store sales, considered the most reliable indicator of a retailer’s success, fell 0.6%.

“While we are disappointed in our first-quarter performance, we remain confident in our strategy,” Target CEO Gregg Steinhafel told press. In the last year, Target has focused investments in its Canadian stores, its online presence, and in CityTarget–a chain of smaller Target stores placed in major metropolitan areas.

CityTargets, which are typically about two-thirds the size of regular Target stores, have been launched in Los Angeles, San Francisco, Chicago and Seattle. This month, Boston Business Journal reported that Target had turned down proposals to open CityTargets in Boston, and, according to an unnamed source, was “rethinking the concept.”

But in this morning’s statement, Steinhafel made no references to a CityTarget slow-down. Instead, the company blamed plummeting profits on “soft sales” in seasonal and weather-related categories. An exceptionally cold, and long winter has hurt retailers across the board, affecting not only seasonal clothing sales, but garden products and sportswear.

Reacting to the dismal numbers, Target has reduced its full-year profit forecast. Previously, the retailer had expected full-year adjusted earnings between $4.85 and $5.05 per share; Target says it now expects adjusted earnings between $4.70 and $4.90.

Following the announcement, shares of Target were down 3.8%, to $68.57 as of 10am today.

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