Target's fiscal fourth-quarter net income dipped 2 percent as it dealt with intense competition during the crucial holiday season. The retail chain's adjusted results beat analysts' estimates.
But Target's stock slipped 2 percent in premarket trading Wednesday as its gross margin - the amount of each dollar in revenue a company actually keeps - shrank and a key revenue figure posted only a modest increase.
Many had wondered how Target would do now that consumers are being squeezed by a 2 percent payroll tax increase that was rolled out last month. Burger King and Wal-Mart have already noticed a pull-back from the tax hike.
Aside from that, Target also faced the disappointment of its partnership with luxury merchant Neiman Marcus during the quarter. The pair of retailers rolled out a limited selection of products from 24 designers, including Oscar de la Renta and Diane von Furstenberg, on Dec. 1. But just weeks later Target was offering big discounts to clear the shelves of unsold merchandise.
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.
The holiday shopping period is critical for retailers, as it can make up as much as 40 percent of their annual revenue.
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 certain items, earnings were $1.65 per share. That tops the forecast of analysts polled by FactSet for earnings of $1.47 per share.
Revenue climbed 7 percent to $22.73 billion from $21.29 billion. This met Wall Street's 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.
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.
Gross margin fell to 27.8 percent from 28.4 percent partly because of markdowns on seasonal merchandise.
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. 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 $1.30, or 2 percent, to $62.75 before the market open.
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