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Target to take $1 billion margin hit to close gap with rivals, shares sink

Target Corp's (TGT. N) full-year profit forecast fell far below market expectations as the retailer said it would take a $1 billion hit to margins in efforts to ramp up its online presence and cut prices to stay relevant amid fierce competition. The company's shares tumbled more than 13 percent on Tuesday, on track for their biggest one-day percentage drop in more than 18 years. The retailer also forecast a surprise decline in full-year sales at stores open for at least a year and reported weaker-than-expected same-store sales for the holiday quarter, blaming "unexpected softness" in it stores. Target's disappointing results come with the retail industry under pressure from lackluster economic growth, intense competition from (AMZN. O) and other online rivals, and concerns about the impact of President Donald Trump's planned border tax on the import of goods."We've not seen this number of distressed retailers since 2009 in the great recession. This contraction will create opportunities for Target to pick up market share over the long-term," Chief Executive Brian Cornell said during the company's investor day conference. Cornell said the retailer would undertake "aggressive promotional activities" that would erode its operating margins by $1 billion this year. Target also said it planned to invest $2 billion in 2017 on analytics, supply chain and opening 100 more small-format stores such as TargetExpress in urban neighborhoods and college markets. It also laid out plans to launch more than 12 new brands exclusive to the retailer. The changes to strategy echo moves by bigger rival Wal-Mart Stores Inc (WMT. N) two years ago when it aggressively cut prices and boosted its online presence.

Target, however, was unable to act at the time due to high costs related to a massive data breach and its decision to pull out of Canada."Basically, (Target is) doing what Wal-Mart did about two years ago," Edward Jones consumer analyst Brian Yarbrough said."I think they realized that they're going to have to invest to be more competitive. ... Most people thought they were going to take guidance lower, but this is definitely much worse than feared."Target forecast full-year earnings of $3.80-$4.20 per share from continuing operations, while analysts' on average were expecting its profit to top $5.00, according to Thomson Reuters I/B/E/S.

ONE BRIGHT SPOT Target's same-store sales fell 1.5 percent in the fourth quarter, which encompasses the important holiday shopping season. The decline was steeper than the 1.3 percent drop analysts had estimated, according to research firm Consensus Metrix. The company's net sales fell for the sixth straight quarter, declining to $20.69 billion, while its adjusted profit of $1.45 per share was also shy of the $1.51 analysts' were expecting.

One bright spot in the otherwise lackluster results was a 34 percent jump in Target's digital sales. Still, the results compare poorly against those of Wal-Mart, which last week reported higher-than-expected U.S. sales as its low-price strategy paid off and online activity accelerated. Target said it expects same-store sales to decline in the low-single digit percentage range in fiscal 2017, after reporting a fall of 0.5 percent in 2016. Analysts on average were expecting the company's same-store sales to increase 0.4 percent in 2017. Target's shares were down 13.5 percent at $57.90 in morning trading on Tuesday. They hit a session low of $57.36, their lowest since August 2014.

FILE PHOTO - A newly constructed Target store is shown in San Diego, California May 17, 2016.

REUTERS/Mike Blake/File Photo

U.S. economy slows in the fourth-quarter; consumer spending remains bright spot WASHINGTON U.S. economic growth slowed in the fourth quarter as previously reported, with robust consumer spending offset by downward revisions to business and government investment.

Wilbur Ross sworn in as secretary of commerce WASHINGTON Billionaire investor Wilbur Ross was sworn in as U.S. commerce secretary on Tuesday after helping shape Republican President Donald Trump's opposition to multilateral trade deals.

Comcast to buy remaining 49 percent stake in Universal Studios Japan Comcast Corp said on Tuesday it would buy the 49 percent it does not already own in Universal Studios Japan (USJ) for 254.8 billion yen ($2.27 billion) as the No. 1 U.S. cable operator seeks to expand its Asian theme parks business.

U.S. new home sales rebound; consumer sentiment dips

New U.S. single-family home sales rose less than expected in January, likely held back by heavy rains and flooding in California, but continued to point to a strengthening housing market despite higher prices and mortgage rates. Other data on Friday showed a dip in consumer sentiment this month, though it remained at a level consistent with a healthy pace of consumer spending. The economy has gained momentum, supported by a labor market that is near full employment."It is clear that the economy is moving forward solidly. Consumers are confident and are buying homes, but builders are not getting their share of that demand," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. The Commerce Department said new home sales increased 3.7 percent to a seasonally adjusted annual rate of 555,000 units last month. Economists had forecast single-family home sales, which account for about 9 percent of overall home sales, surging 6.3 percent to a 570,000-unit rate. New home sales, which are derived from building permits, are volatile on a month-to-month basis and subject to large revisions. Sales were up 5.5 percent compared to January 2016. Last month, homes sales soared 15.8 percent in the Northeast to their highest level since January 2008. They rose 14.8 percent in the Midwest and advanced 4.3 percent in the South. Sales in the West, which has been hit by extremely rainy weather, fell 4.4 percent."The unusually wet winter may have held back sales in January, but sales are still trending higher on a three-month moving average basis," said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Data this week showed sales of previously owned homes jumped 3.3 percent to a 10-year high in January. House prices increased 6.2 percent in December from a year ago.'SUPPLY-SIDE CHALLENGES' In a separate report on Friday, the University of Michigan said its consumer sentiment index fell to a reading of 96.3 this month from 98.5 in January. The index had surged in the prior three months after Donald Trump's presidential election victory.

"With the focus shifting from campaign promises and philosophical goals, consumers may be acknowledging the difficult task ahead for the Trump administration to actually advance his agenda," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. The University of Michigan said February's consumer sentiment reading suggested a 2.7 percent annualized growth pace in consumer spending this year. U.S. stocks were trading lower on Friday, with the Dow Jones Industrial Average . DJI on track to snap a 10-day record-setting winning streak. The PHLX housing index . HGX fell marginally. U.S. government bond prices rose, while the dollar . DXY dipped against a basket of currencies.

The housing market has firmed even as the 30-year fixed mortgage rate rose above 4.0 percent, outpacing annual wage growth that has been stuck below 3 percent. The tightening job market is driving the gains in housing. While the healthy labor market has not unleashed a stronger pace of wage growth, it has improved employment opportunities for young Americans, encouraging them to form their own households. But a shortage of properties available for sale remains an obstacle to a robust housing market."Mortgage rates aren't to blame. A big part of the problem is the supply-side challenges builders are facing, like regulatory burdens, labor shortages and a lack of capital and financing options," said Jonathan Smoke, an economist at in Atlanta. The inventory of new homes on the market increased 3.5 percent to 265,000 units last month, the highest level since July 2009. New housing stock remains less than half of what it was at its peak during the housing boom in 2006. At January's sales pace it would take 5.7 months to clear the supply of houses on the market, which was unchanged from December. A six-month supply is viewed as a healthy balance between supply and demand. The median price for a new home increased 7.5 percent to $312,900 in January from a year ago.