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Sears Holdings Corporation (SHLD), Target Corporation (TGT) & Dollar Tree, Inc. (DLTR): Two Retailers to Sell and One to Buy

Missing the target

Target Corporation (NYSE:TGT), on the other hand, is far more profitable than Sears. However, most investors were already expecting the company to miss its first quarter earnings after its primary rival Wal-Mart Stores, Inc. (NYSE:WMT) dropped the ball earlier this month.

For its first quarter, Target earned $0.77 per share, or $498 million, down from the $1.04 per share, or $697 million, it earned a year ago. Adjusting for one-time benefits and charges, Target Corporation (NYSE:TGT) earned $0.82 per share, which missed the consensus estimate of $0.85 per share. Revenue declined 1% to $16.71 million, which also came in below the expected $16.8 billion.

Just like Wal-Mart Stores, Inc. (NYSE:WMT) and Sears, Target blamed the cooler spring season for its top and bottom-line declines. Sales of seasonal products such as apparel, sporting goods and outdoor furniture were weak, contributing to a same-store sales decline of 0.6% – a big drop from the same-store sales growth of 5.3% it reported in the first quarter of 2012.

Target Corporation (NYSE:TGT) is attempting to expand into Canada, opening 24 stores there during the quarter and adding 24 this month. Target intends to have 124 Canadian stores up and running by the end of the year. Yet this expansion caused SG&A (selling, general and administrative) expenses to rise 5.8%, while net interest expense rose from $184 million to $629 million. It is also incurring losses from its Canadian operations, which had an adverse impact of $0.24 on non-adjusted earnings per share.

Target also reduced its full year earnings outlook from $4.85-$5.05 to $4.70-$4.90, casting doubt on the company’s growth potential. In my opinion, Target Corporation (NYSE:TGT)’s weak same-store sales, its top and bottom line declines and aggressive, costly expansion into Canada are all reasons to avoid this stock.

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