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Target's adjusted 4Q profit beats Street view

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MINNEAPOLIS – Target's Neiman Marcus collaboration did not turn out to be a holiday gift to the retailer.

The No. 2 discount chain reported fiscal fourth-quarter net income dipped 2 percent as it dealt with intense competition during the crucial holiday season. Still, the company's forecast for 2013 indicated it may beat many analysts' expectations.

"We're pleased with Target's fourth quarter performance, particularly in the face of a highly promotional retail environment and continued consumer uncertainty," Chairman, President and CEO Gregg Steinhafel said in a statement.

But investors were disappointed in the results, sending shares down almost 2 percent in morning trading.

The big-box retailer, known for its cheap but trendy merchandise, had high hopes for the collection of gifts made in partnership with luxury department store Neiman Marcus. The pair of retailers rolled the line of gifts from 24 designers, including Oscar de la Renta and Diane von Furstenberg, on Dec. 1. But just weeks later Target was offering big discounts — up to 75 percent off — to clear the shelves of unsold merchandise.

Also, during the critical shopping months of November and December Target embraced a number of different strategies, like matching the price of online competitors such as Amazon.com, Walmart.com, Bestbuy.com and Toysrus.com. It was an attempt to combat "showrooming," in which people use smartphones while they're in stores to look for cheaper prices online.

But the initiatives did not spur customers to buy more during the holiday shopping period, which is critical for retailers, as it can make up as much as 40 percent of their annual revenue.

The number of transactions fell 1 percent during the quarter, although the amount spent per transaction rose 1.4 percent.

The company said its gross margin — the percentage of each dollar in revenue made that a company actually keeps — declined during the quarter due to holiday markdowns.

Edward Jones analyst Brian Yarbrough said the Neiman Marcus collection was small, so it didn't have a huge impact on results. The bigger problem was overall seasonal merchandise that didn't sell during a slow December.

"I think that was the biggest issue in this quarter was leftover seasonal inventory that didn't sell, so they cleared it out in January," he said. But overall it was a decent report, he added.

"Results were in-line, and forward guidance was pretty solid," he said.

For the three months ended Feb. 2, Target earned $961 million, or $1.47 per share, for the period ended Feb. 2. That's down from $981 million, or $1.45 per share, a year earlier.

Removing costs including interest expense related to the company's U.S. credit card segment and a provision for income taxes, earnings were $1.65 per share. That tops the forecast of analysts polled by FactSet for earnings of $1.47 per share.

Target had forecast adjusted earnings between $1.64 and $1.74 per share.

Revenue climbed 7 percent to $22.73 billion from $21.29 billion. This met Wall Street's expectations.

During the quarter, revenue at stores open at least a year edged up 0.4 percent. This figure is a key indicator of a retailer's health because it excludes results from stores recently opened or closed.

For the full year, the Minneapolis company earned $3 billion, or $4.52 per share. A year earlier it earned $2.93 billion, or $4.28 per share. Adjusted earnings were $4.76 per share.

Annual revenue increased 5 percent to $71.96 billion from $68.47 billion.

Target Corp.'s outlook for 2013 was brighter. The chain foresees first quarter adjusted earnings of $1.10 to $1.20 per share. Analysts predict earnings of $1.05 per share.

The chain's fiscal 2013 outlook is for adjusted earnings between $4.85 and $5.05 per share. Wall Street expects earnings of $4.87 per share.

Target has 1,778 stores across the U.S. Its stock fell $1.21, or 1.9 percent, to $62.84 in morning trading.

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