NEW YORK (AP) — Target will report fourth-quarter financial results Wednesday that could provide a better understanding of the squeeze consumers are feeling from a 2 percent payroll tax increase that was rolled out last month.
WHAT TO WATCH FOR: Burger King and Wal-Mart have already noticed a pull-back from the tax hike and investors will want to know whether Target, which sells cheap, trendy clothes and home decor under the same roof as toothpaste and cereal, has seen the same thing.
Wal-Mart Stores Inc. offered a subdued outlook last week, noting the payroll tax and delayed tax refunds. The world's largest retailer expects to post flat revenue at stores opened at least a year for the current quarter. That's a slowdown from modest growth last year.
Investors want to know if Target shoppers are trading down to cheaper merchandise sold elsewhere to off-set more meager take-home pay. Shares of bargain stores like Dollar General, Family Dollar and Dollar Tree began to jump last week on that speculation.
The mounting financial pressure on Target customers comes as the retailer grapples with uneven sales growth. It's sought new ways to boost its fashion image, while expanding grocery offerings to get more people through the door.
Like many retailers, Target saw a holiday season that was more challenging than expected, though things appeared to improve in January. Revenue at Target stores opened at least a year rose 3.1 percent in January, with many people showing up for holiday clearance merchandise.
For the quarter, however, revenue at stores open at least a year rose a modest 0.4 percent.
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.
With so many retailers do the same thing, investors want to know how the strategy played out.
They will also want to know what lessons were learned from a partnership with the luxury merchant Neiman Marcus leading into the holiday shopping season.
The much-publicized partnership was a disappointment. Target offered a limited selection of products from 24 designers, including Oscar de la Renta and Diane von Furstenberg.
The two retailers launched the program on Dec. 1 and weeks later, Target was offering big discounts to clear the shelves of unsold merchandise.
WHY IT MATTERS: Target's size, its sweep across American consumer markets make it a barometer of consumer spending, which is an important part of the U. S. economy.
WHAT'S EXPECTED: For the fourth quarter analysts on average expect the Minneapolis chain to report a profit of $1.47 per share on revenue of $22.74 billion, according to FactSet.
LAST YEAR'S QUARTER: A year ago, Target Corp. earned $1.45 per share on revenue of $21.26 billion.