* Target Q1 EPS $0.99 tops Wall St view $0.94
* BJ's Wholesale Q1 EPS 62 cents tops St view 56 cents
* BJ's raises FY EPS forecast to $2.68-$2.82
* Target shares down 3 percent; BJ's up 2 percent
(Adds comments from Target conference call, analyst)
By Jessica Wohl
CHICAGO (Reuters) - Shoppers are spending
cautiously because of higher food and gas prices, results
reported Wednesday by Target Corp and BJ's Wholesale
Club Inc showed.
The results suggest discretionary spending, and therefore
retailers' margins, may remain under pressure this year.
Investors were most concerned about Target's prospects, as
its shoppers continue to buy food and other basics and shun
less essential items.
The U.S. recovery will continue to be slow and uneven,
particularly for more moderate-income households, Target Chief
Executive Gregg Steinhafel said during a conference call.
Target also said it plans to close on some Canadian leases
earlier than expected, leading to higher costs this year.
"The overall business needs to gain further traction to get
people comfortable," Susquehanna Financial Group analyst Bob
Summers said of Target, which he rates "positive."
In general, retail earnings looked all right in the
quarter ended around April 30, said Kurt Salmon retail
strategist John Long, but shoppers were largely absorbing
higher costs just on food and gasoline and had yet to face
looming increases other goods.
"We're already starting to see a little bit of margin
pressure," Long said. "And we think that as we get into the
summer and fall, when we see bigger price increases ... that
may cause some consumers to pull back."
At Target, more shoppers have signed up for the chain's
credit and debit cards, which offer a 5 percent discount. While
that leads people to come in more often, they are using those
cards to buy basics such as food, which carry lower margins
than clothing and other items.
At BJ's, the No. 3 U.S. warehouse club chain, shoppers
traded down in both brands and package sizes, Chief Financial
Officer Bob Eddy said during a conference call.
Other results were mixed, as Abercrombie & Fitch Co
gained market share while Staples Inc missed
Target shares were down 3 percent in afternoon trading,
while BJ's was up about 2 percent and Abercrombie almost 3
percent. Office supply seller Staples plunged over 15 percent.
On Tuesday, Wal-Mart Stores Inc said its customers
were showing pronounced signs of living paycheck-to-paycheck,
as sales at its U.S. discount stores open at least a year had
fallen for two straight years. Its shares
dipped 0.8 percent.
TARGET SHARES DROP
After Target Chief Financial Officer Doug Scovanner
suggested that analysts' expectations might be a tad too lofty,
Target had announced plans to buy leases on up to 220
Zellers discount stores from Hudson's Bay Co back in January,
and is set to open its first Canadian stores in 2013. Getting
some leases earlier than expected will push more of the costs
associated with its plans into the current fiscal year.
"While not completely unanticipated, incremental expenses
associated with the Canadian build-out are not absorbed so
easily right now," Susquehanna's Summers said.
Target's earnings came in 5 cents a share above Wall
Street's expectations, but some of the gains came from soaring
profitability in its credit card business.
Target's total profit rose 2.7 percent to $689 million in
the first quarter ended April 30. Earnings in the credit card
business jumped nearly 75 percent to $194 million.
Selling more fresh produce and signing up more shoppers for
its credit cards have reduced gross margin, which slipped to
30.4 percent from 31.3 percent in the quarter.
"The Street is having a real problem getting a handle on
where this gross margin is going," with the 5 percent reward
program and the increased sales of food, said Wall Street
Strategies analyst Brian Sozzi.
Target also said prices of apparel and home goods could
rise in double-digit percentages this fall as costs increase.
Target's results came two days after hedge fund manager
William Ackman, who had unsuccessfully pushed for changes at
the chain, disclosed that he had sold his shares in the
FOOD SELLS WELL AT BJ'S
BJ's posted a bigger-than-expected rise in profit and
raised its annual earnings forecast as people shopped its
stores more often for food and gasoline.
BJ's sold more food, but sales of items such as apparel,
books, cigarettes, diapers and televisions fell.
As gasoline prices rise, BJ's and larger rivals Costco
Wholesale Corp and the Sam's Club unit of Wal-Mart get
increased business at their pumps.
Still, about 1 percent of BJ's customers are not renewing
their memberships after the annual fee rose by $5 to $50.
BJ's did not give any update on its ongoing review of
options, including a potential sale.
(Reporting by Jessica Wohl; Editing by Lisa Von Ahn and Gerald
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