Target Corporation (NYSE:TGT) operates more than 1,830 general merchandise stores both in the U.S and Canada. Its merchandise is distributed to the end users through a network of third parties, distribution centers as well as via direct shipping performed with the help of vendors. Its merchandise can also be accessed through the official website, www.Target.com. TGT has been around since 1902 when it was founded, and operates from its headquarters in Minneapolis, Minnesota. However, it has been forced to lower expectations for reasons we’ll look at here.

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Target’s Decision to Enter Canada Hasn’t Paid Dividends

Target Corporation has always carried out its operations inside the U.S. However, it thought it was a good idea to undertake expansion into the Canadian market, with the goal of increasing its presence outside the U.S. But contrary to what it expected, its foray into Canada didn’t take place according to plan. This is not the only reason responsible for the lowered expectations as reported by TGT. Its fierce competitors such as Macy’s and Wal-Mart have suffered due to economic factors which haven’t worked for their benefit thus necessitating lowered expectations.

Other factors which have messed Target’s Earnings

TGT relies heavily on the free spending of its American clients. Lately, Americans are not spending as freely as they used to in the past years. This is taking place against a background of a drop in rate of unemployment, in addition to tremendous gain reported within the housing market. Ordinarily, these two factors would have led to increased spending power and behavior by Americans, but it hasn’t happened. The reason which has been given for this pattern is that Americans haven’t enjoyed an increase in their wages which would help them to spend freely.

TGT’s earnings per share in the same quarter in 2012 were reported at $1.06, or $704 million. This amount reduced to $0.95 a share, or $611 million in the same quarter in 2013. However, there was an increase in revenue from the $16.78 billion reported in the same period in 2012. The figures reported recently indicate that the company achieved a growth in revenue to settle at $17.12 billion. This was much lower than the $17.28 billion which analysts had issued as their estimates for Target Corporation.

Other factors which have been responsible for the reduction in TGT’s financial results include the Social Security payroll tax, which has been in effect since Jan 1st 2013. This tax is deducted before Americans receive their wages or salaries hence they take home reduced amounts. This naturally affects their spending power hence blocking them from going to make purchases at Target or Wal-Mart stores. Since this is a development which affects the entire industry, there isn’t much which TGT can do to reverse it, unless the economic situation improves in the U.S.

I don’t see TGT reporting improved financial results until it manages to reduce the depression which is caused by the expansion exercise being carried out in Canada. This exercise will eat into the revenues which the company is making, or hopes to make for the remainder of 2013, and is one reason why it has reported lower expectations.

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