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Increased payroll tax, weather affect Target in Q1

MINNEAPOLIS — Colder weather and more conservative shoppers contributed to a drop in Target's first quarter 2013 profits, but the company's underlying business remains healthy, executives said Wednesday morning in a conference call with investors.

"While we are not satisfied with this quarter's performance, we remain highly confident in our strategy," president, chairman and CEO Gregg Steinhafel said during the call.

Despite lower sales in seasonal and weather-sensitive categories, comps in such categories as health, personal care and consumables were strongest, experiencing single-digit growth.

The company's has made significant investments in its mobile and online business, which Steinhafel said is "rapidly becoming the key platform for digital commerce across all retail." For target, digital sales have been growing in the "high teens," while the company has seen triple-digit mobile-channel sales.

That includes Cartwheel, an app launched under partnership with Facebook that Target is beta testing. The app allows users to find offers on products by browsing the system or looking at friends' activities and add up to 10 to a favorites list, being able to purchase the item once a red check appears in the corner of the offer card and print a special barcode from their desktop computers or use their mobile devices in-store to access it. During the call, EVP merchandising and supply chain Kathryn Tesija said thousands of users had signed up for Cartwheel in the first week.

The company has also continued testing its same-day delivery services with Google and eBay, which started in the San Francisco area earlier this year.

Most recently, Target has been testing an online movie- and TV-streaming service called Target Ticket, and the company announced the opening of a San Francisco Office that will allow it to tap Silicon Valley talent to develop new omnichannel products.

In terms of new stores, Target plans to open 20 more in Canada later in the quarter, for a total of 124 stores by the end of the year. It also opened six new U.S. stores in the first quarter, including its sixth small-format City Target location, in Los Angeles. Tiseja said that while it was too early to draw any lessons from the Canadian stores, it had applied some ideas from the City Target stores in Canada, as both tend to be located in relatively dense urban areas.

The mass-merchandise retailer reported U.S. sales of $16.6 billion, a 0.5% increase over last year's $16.5 billion, while comps declined by 0.6%. The chain's new Canadian segment's first 24 stores registered sales of $86 million. Profit for the quarter was $498 million, down from $697 million last year.

In other news, Target announced plans to donate $250,000 in monetary support and merchandise to assist with tornado relief efforts in Moore, Okla. The donation includes $150,000 in cash and in-kind donations to the American Red Cross, $30,000 in a cash donation to the Salvation Army and $20,000 in product donations for other community needs such as water and other rescue and recovery supplies. Target will also donate $50,000 to Plaza Tower and Briarwood Elementary Schools to aid in recovery efforts.

“Target is saddened by the devastation in Moore, Okla., and committed to being a resource for this community,” said Gregg Steinhafel, chairman, president and CEO, Target. “By volunteering our time and donating product and funds, we hope to help the residents of Moore recover from this disaster.”

Target is supporting local police and emergency responders, whose command center is currently located in the Moore Target store parking lot at 720 SW 19th St. Local stores have donated bottled water, coolers, tents, utilities gloves, batteries, diapers and food to first responders and the community as needed. In addition, this year Target has given $500,000 to the American Red Cross as part of the nonprofit’s Annual Disaster Giving Program.