Target's fourth-quarter net income dipped 2 percent to $961 million, as the retailer dealt with intense competition and consumer anxiety during the holiday season.
During November and December, Target matched the prices of online competitors such as Amazon, Walmart and Best Buy. That cut into profits. And Target has since decided to price-match year-round.
"Their recent decision to match competitor prices, which we think is actually a good move to defend their market share, that will cut into margins," said Michael Keara, a retail analyst with Morningstar. "The fact is Target prices off Walmart and Walmart is cutting about $6 billion out of their prices over the next few years."
Sales at Target stores open at least a year were up 4 percent. Target said consumer worries about the fiscal cliff and overall political uncertainty hurt its sales and earnings.
Target, like other retailers, also felt the impact of the payroll tax increase that took effect last month, toward the end of Target's fourth quarter.
"Consumer sentiment fell sharply in the fourth quarter, reflecting turmoil surrounding the fiscal cliff and overall political uncertainty," said Kathee Tesija, the company's executive vice president for merchandising. "In addition, more than 50 percent of U.S. consumers believe the economy will either remain the same or get worse in 2013."