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 shows a lingering effect from the massive
data breach that hit Target during the holiday shopping season, and
how the retailer had to offer more discounts to get shoppers back.
Still, 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 move quickly to 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.
In its core U.S. business, Target intends to continue to use
discounts to get shoppers back, and will try to get more desirable
products back into its stores, a one-time strength that Target has
strayed from of late.
"We need to improve on what we've done historically well," Mr.
Mulligan said Wednesday during a call with reporters.
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 sales will continue to slide. American
Eagle Outfitters Inc. Wednesday said it plans to close 150 stores
in the next three years.
In its U.S. operations, Target's sales barely grew, rising 0.2%
to $16.7 billion, and sales at stores open more than 13 months
slipped 0.3%, within the range provided in February. The number of
transactions declined 2.3%, but average transaction amounts
increased 2.1%, reflecting the sale of more higher-priced items,
like electronics.
The sales trends did improve from the previous quarter, when
Target suffered steep declines in the immediate aftermath of the
security breach. But after improving in February and March, sales
took a step back in April, Mr. Mulligan said.
Target's U.S. margins narrowed during the quarter because of
markdowns.
In Canada, Target's sales of $393 million came in below its own
forecast made in February. The operations had a loss of $211
million for the latest period, bringing the total losses in Canada
to around $1.6 billion, after just opening its first stores there
last year.
Target is taking steps to fix the unprofitable Canadian
operation. On Tuesday Target replaced its Canada president and 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 it has already invested $4.4 billion.
For the quarter ended May 3, Target reported a profit to $418
million, down from $498 million a year earlier. Revenue increased
2.1% to $17.05 billion. The company lowered its per-share profit
forecast for the year.
The retailer took on another $18 million of expenses related to
the data breach that hit the retailer over the holiday less the
amount covered by insurance. That comes on top of the $17 million
of data breach-related costs the retailer recorded in the
fourth-quarter after accounting for insurance proceeds
Target's shares were up slightly in Wednesday morning trading,
but its shares are down 16.4% over the past year.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
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