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Target has reported that it generated fourth quarter net earnings of USD832 million, an increase of 21.1% compared with 2002. Fourth quarter revenues amounted to USD15.571 billion, up 10.7% compared to 2002, with comparable store sales growth of 4.9%.

For the full year, net earnings were USD1.841 billion – an uplift of 11.4% compared with USD1.654 billion in the prior year. Total revenues in 2003 increased by 9.7% to USD48.163 billion, boosted by contributions from new stores and a 2.9% growth in comparable-store sales. Bob Ulrich, chairman and CEO, asserted: "We are pleased with our overall financial results for 2003. As expected, we delivered much stronger growth in the fourth quarter than in our first nine months."

Also as expected, overall progress at group-level masked continued disappointment at the company’s two department store chains, with the core Target and SuperTarget operations practically carrying the business. The Target division posted full-year sales growth of 12.0% and comps of +4.4%. Mervyn’s, meanwhile, saw sales slide by 6.9%, a comparable decrease of 7.6%; while Marshall Field’s experienced a less severe dip of 4.0%, a decline of 2.6% on a comparable stores basis. This recurring underperformance of the two chains has seen renewed demands from investors and analysts that they should be hived off into a separate or sold.

The retailer has turned in another solid year, but it is increasingly worrying that Target’s impressive growth is being achieved despite, not because of, its department store divisions. Their comparable sales performance has been lacklustre for quite some time now and their contributions to profits in 2003 declined significantly (down 33% at Mervyn’s and 21% lower at Marshall Field’s). While there must be some inter-segment synergies in terms of buying and logistics, these are hardly compelling, particularly in the face of the two chains’ consistent underperformance.

It would therefore make sense to either ring-fence or dispose of these operations to ensure that they do not continue to hold back the main operating divisions and the group as a whole. One interesting recent development was the news that Galen Weston, the Canadian serial retail investor who controls the Loblaw grocery group in Canada, has stated that he is looking to acquire a department store chain in the USA in order to beef up buying power with the suppliers of designer fashion brands. Weston's private investment vehicle, Wittington Investments, already owns department store groups Selfridges (UK), Brown Thomas (IE) and Holt Renfrew (CA), and is though to be looking to acquire an ‘upmarket chain’ in the US. Whether or not Marshall Field’s or Mervyn’s fit the bill remains to be seen, but either chain might conceivably be of interest.

In terms of the Target division, however, things are looking much rosier. The SuperTarget supercenter chain has seen another year of strong growth on the back of continued new store openings and an improvement of the grocery offer, and exactly the same can be said of the core Target chain. The Target concept is to see further improvements in 2004, with the company preparing for the roll-out of a new format for its discount stores over the course of the year. The new format, which was first unveiled in October 2003 in Greeley, CO, devotes around 50% more shelf space to food than at an old-style Target store. The range consists of staples such as cleaning products, paper products and chilled and ambient foods, although it does not include fresh produce or meats as could be found at a SuperTarget.

The new format stores also feature more extensive ranges in areas such as entertainment and baby care. Thirteen of 25 new Target stores to open in March 2004 will adhere to the new prototype; more than 80 existing stores will be converted to the format in 2004; and over 130 other stores will be retrofitted with features of the new format. While the moves will do little to close the gap with the unstoppable juggernaut that is Wal-Mart, they are certainly a step in the right direction.
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