By Chelsey Dulaney And Paul Ziobro
Nearing the one-year anniversary of Target Corp.'s massive and
costly data breach, the company is looking to show that it has
moved on.
On Wednesday, the discounter will report third-quarter earnings,
and encouraging signs are appearing. Analysts have noted a recent
pickup in foot traffic at Target stores and suggested that U.S.
sales may have bottomed out. The recent optimism has helped to lift
Target shares to 2014 highs.
The positive signals, however, come against a difficult
backdrop. Target has already cut its outlook twice this year, as it
dealt with the aftereffects of last year's holiday data breach by
offering bigger discounts to get shoppers into its stores. Customer
traffic at Target's U.S. stores has fallen for seven straight
quarters.
By comparison, rival Wal-Mart Stores Inc. last Thursday reported
its first gains in same-store sales in the U.S. since 2012, though
traffic fell for the eighth consecutive quarter.
Target in August forecast per-share earnings, excluding expenses
related to its data breach and other costs, of 40 cents to 50 cents
for the third quarter.
The retailer expects sales at stores open more than 13 months to
be flat or up 1%.
For the third quarter, which ended in October, analysts are
expecting Target to deliver per-share earnings of 48 cents on
revenue of $17.56 billion, below the 56 cents a share in earnings
and $17.26 billion the retailer posted a year earlier.
In August, the company brought in a new chief executive, Brian
Cornell, who is fast coming up to speed with Target's vast
challenges, from enticing shoppers to come into stores, to getting
them to buy more online, to fixing its operations in Canada, its
first international foray, which didn't go smoothly.
"No one is happy with our current performance," he said in
August.
Mr. Cornell started his role just a few days into the third
quarter, so his imprint has been minimal on the retailer's earnings
for the quarter, given the long lead time for merchandising plans
and crafting strategy.
But the former PepsiCo Inc. executive's approach is taking
shape. In September, he said he wanted Target to focus on just a
half-dozen key categories--like baby products, fashion and
furniture--that can help it stand out in a sea of sameness in
retail. Those areas are poised to get added attention and resources
in the months ahead.
For the holidays, Mr. Cornell is trying to imbue Target with
that new sense of urgency. He helped set up Target's partnership
with Story, a New York boutique that changes over its entire set-up
every few months and showcases products from designers and large
companies.
After a September visit to Story, Mr. Cornell called on his team
to forge a deal to showcase Target's holiday selection there this
year. The team, Mr. Cornell said, incorrectly assumed their new CEO
meant the 2015 holidays.
Also during these holidays, Target plans to remain aggressive
with a rash of promotions aimed at driving sales and traffic--at
the expense of profits. Plans include free shipping on all orders
from its website, offering deals earlier in the month and opening
its stores earlier on Thanksgiving Day.
The aggressive offers are already reflected in a lowered
profit-margin outlook Target laid out in August.
Target's results for the fourth quarter should surpass last
year's results, which were hit hard by the holiday data breach,
which compromised 40 million credit and debit cards.
Target is also still trying to salvage its move into Canada,
which faltered from the get-go. Shoppers have complained that
Target's prices were too high compared with those in its stores
south of the border, and store shelves were often empty of the
products consumers wanted.
Target has responded by lowering prices to be more competitive
in Canada and adding more new products for the holiday season. Mr.
Cornell has made at least three visits to the Canadian operation
since he started in August.
MKM Partners analyst Patrick McKeever expects Target to do a
"grand reopening" in Canada next year and doesn't put much stock in
investor speculation that Target will exit Canada as early as
2015.
But Mr. McKeever is sober about Target's prospects given the
scope of the challenges.
"We think the enthusiasm is a bit overdone, as we believe
domestic store traffic remains challenged and given our view that
Canada may not be fixed or divested for some time," Mr. McKeever
wrote.
The Week Ahead looks at coming corporate events.
Access Investor Kit for PepsiCo, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US7134481081
Access Investor Kit for Target Corp.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US87612E1064
Access Investor Kit for Wal-Mart Stores, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US9311421039
Subscribe to WSJ: http://online.wsj.com?mod=djnwires