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Target reported on Tuesday a 43 percent drop in profits and a slight uptick in sales for the holiday quarter, reflecting the discounter's ongoing challenges of cautious consumer spending and its own higher costs.

The fiscal fourth-quarter results beat retail industry analysts' expectations. But the Minneapolis discounter issued a cautious outlook for the year as inflation squeezes household budgets. Shares dropped 5 percent.

 tepid annual forecasts last week. Inflation on everything from food to gas that has gripped Americans for nearly two years is weighing on shoppers even though there has 

 to increase interest rates further and to keep them there through year’s end. That means higher borrowing costs for shoppers.

Walmart said it expects sales at stores opened at least a year for its U.S. business to rise 2 percent or 2.5 percent for the year, while Home Depot forecasts growth for that metric to be roughly flat this year compared with a year ago.

For the full year, Target expects comparable sales — those from stores open at least a year and online channels — will range from a low single-digit decline to a low single-digit increase.

“We're planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment," Target CEO Brian Cornell said in a statement.

He noted that the company entered the year in a “very healthy inventory position,” reflecting its conservative approach in discretionary items like clothing.

Inventory in categories like fashion was roughly 13 percent lower in the fourth quarter than a year ago.

Target has taken a bigger hit to its business compared to other big box retailers likely because it relies more on discretionary items like clothing and home furnishings. More than 50 percent of Walmart’s U.S. business comes from groceries; that number is 20 percent at Target.

The quarter marks Target's fourth straight quarterly profit drop. For the fiscal third quarter, Target reported a 52 percent profit drop, while earnings plummeted nearly 90 percent in the second quarter and 52 percent in the first.

Target warned that it was canceling orders

 from suppliers and aggressively cutting prices because of a pronounced spending shift by Americans.

 with a goal of saving $2 billion to $3 billion over the next three years. Those cost cuts would not include widespread layoffs or hiring freezes, executives said. At that time, it said shoppers were waiting to buy on sale, purchasing smaller packages and trading down to store brands instead of national labels, which tend to be more expensive.

But even as Target projects lower sales, the retailer is pushing ahead to accelerate its ecommerce strategy. It announced last week that it will spend $100 million to develop a larger network of package sorting centers that cut the cost of delivering online orders while increasing the speed of delivery.

Target said fourth-quarter profits were $876 million, or $1.89 per share, for the quarter that ended Jan. 23. That compares with $1.54 billion, or $3.21 per share, in the year-ago period.

Sales rose 1.3 percent, to $31.4 billion. Analysts were expecting earnings of $1.40 a share on sales of $30.7 billion, according to FactSet.

The company’s total comparable sales inched up 0.7 percent in the fourth quarter compared with a year ago.

The company expects adjusted earnings per share to be in the range of $7.75 to $8.75 for the year. Analysts were expecting $9.18, according to FactSet.

Target said that over the next three years, it expects its operating income margin rate will reach, and begin to move beyond, its pre-pandemic rate of 6 percent as early as fiscal 2024, depending on the economic recovery and consumer demand.

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The Associated Press

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Target has reported a 43 percent drop in profits and a slight uptick in sales for the holiday quarter. The discounter is still grappling with a slowdown in consumer spending and its own higher costs.

Shoppers at a Target store endure blizzard conditions.

Target issues tepid outlook after a 43% profit drop in 4Q

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