By Paul Ziobro
Target Corp. said its earnings fell 16% as fewer shoppers
visited stores and losses from its Canada expansion mounted,
highlighting the depths of the problems faced by the retailer that
ousted Chief Executive Gregg Steinhafel earlier this month .
The earnings report showed that a massive data breach at its
stores over the crucial holiday season continues to take a toll on
the retailer's performance. Traffic to its stores fell for the
sixth straight quarter. Target also forecast second-quarter
earnings below expectations and cut its guidance for the year, as
the company needs to spend more money to boost U.S. sales, fix
Canada and try to improve its digital sales capabilities.
The task to return to growth falls to John Mulligan, Target's
chief financial officer and interim CEO, who has stressed the
urgency to quickly fix Target's myriad problems--from stemming the
Canadian losses to finding the right selection of hip products and
low prices to get shoppers to come into stores.
The results come against the backdrop of continued weak U.S.
retail sales, which rose just 0.1% in April, according to the
Commerce Department. Other retailers from Macy's Inc. to Kohls
Corp. have reported drops in sales and traffic for the quarter, and
Wal-Mart Stores Inc. warned that sales will continue to slide.
In its U.S. operations, Target's sales improved by 0.2% to $16.7
billion, and sales at stores open more than 13 months fell 0.3%,
within the range provided in February. The number of transactions
declined 2.3%, but average transaction amounts increased 2.1%
primarily reflecting higher prices.
Target's U.S. margins fell during the quarter because of
markdowns.
The retailer took on another $26 million of expenses related to
the data breach that hit the retailer over the holiday, and about
$8 million of that was covered by insurance. That comes on top of
$61 million of data breach-related costs in the fourth-quarter,
which was offset by $44 million of insurance proceeds.
The company spent another $13 million in the first quarter as
part of its recent decision to convert its store-branded credit
cards to MasterCard from Visa.
In Canada, Target's sales were $393 million, below its February
forecast. Losses for the period were $211 million, bring the total
losses to around $1.6 billion in just a little over a year
operating stores there.
Target on Tuesday replaced the head of its Canada business, Tony
Fisher, with a senior merchandising executive from the U.S.
operations, part of several new appointments to the top of its
Canada team over the past few months. The company also plans to
name a nonexecutive chairperson to advise the business and try to
salvage Target's first expansion outside the U.S., where the
company has already plowed $4.4 billion.
For the quarter ended May 3, Target reported a profit to $418
million, or 66 cents a share, down from 498 million, or 78 cents a
share, a year earlier. Excluding items like expenses from the data
breach, per-share earnings were 70 cents a share, above the
midpoint of Target's forecast of 60 cents to 75 cents a share.
Revenue increased 2.1% to $17.05 billion.
Analysts polled by Thomson Reuters expected per-share earnings
of 71 cents on revenue of $17 billion.
Target forecast per-share earnings of 85 cents to $1 for the
second quarter, below analyst estimates of $1.02. For the full
year, Target expects adjusted per-share earnings of $3.60 to $3.90
a share, versus prior guidance of $3.85 to $4.15 a share.
Target's shares have lost nearly 8.8% since Mr. Steinhafel
announced his resignation on May 5. Shares are down 19.9% over the
past year.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
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