Target blames Canada and cautious shoppers as it warns on year

Wed Aug 21, 2013 2:47pm EDT
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By Jessica Wohl

(Reuters) - Target Corp (TGT.N: Quote) warned of weak annual sales and profits on Wednesday as U.S. shoppers remain cautious and its new Canadian stores are not doing as well as anticipated.

Shares of Target fell as much as 4.1 percent to $65.14, their lowest level since March, and were down 3 percent in later trading.

The chain, which competes against Wal-Mart Stores Inc (WMT.N: Quote) and other discount retailers with a mix of basic goods, apparel and accessories, posted a second-quarter profit just ahead of expectations while sales missed estimates.

Target said this year's profit should come in at the low end of already reduced expectations and that sales at stores open at least a year should grow just 1 percent rather than 2 to 2.5 percent, as U.S. shoppers remain cautious in the face of ongoing household budget pressures such as higher taxes and gasoline prices.

At the same time, the Canadian business is costing more than Target anticipated and will weigh on full-year profit.

Target opened its first Canadian stores in March after announcing its plans in early 2011. That gave Target time to remodel the stores it bought from Zellers, hire and train thousands of employees and set up its supply chain, but it also gave competitors time to step up their efforts.

"The competitors have really done a good job in defending their space," said Stewart Samuel, program director at IGD Canada, pointing in particular to Wal-Mart, Loblaw Cos Ltd (L.TO: Quote) and Shoppers Drug Mart Corp SC.TO.

Target said it needs to do a better job of advertising low prices on basic goods such as healthcare and food items that bring shoppers in often.   Continued...

Shopping carts from a Target store are lined up in Encinitas, California May 22, 2013. REUTERS/Mike Blake