Struggling Target Corp. has a lot of work to do — and on Wednesday promised to move faster.
This story first appeared in the May 22, 2014 issue of WWD. Subscribe Today.
As the company reported a 16.1 percent drop in net profits in the first quarter and lowered its earnings outlook for the year, it reiterated plans to open smaller, more flexible store formats while vowing to grow traffic and sales in the U.S., improve the performance of its loss-making Canadian division, and accelerate its transformation into an omnichannel retailer.
“With the full support of the board, [we] have made it clear to the entire Target team that we are not going to wait for a permanent ceo to improve our operations in performance,” said John Mulligan, chief financial officer and executive vice president, who was named interim chief executive officer on May 5 after Gregg Steinhafel was ousted.
Proving the pressure the retailer is under, Mulligan added that the management’s “mission from the board is clear: Provide focus, remove roadblocks and unleash the team to move faster.”
He told analysts there is one way the retailer will grow, a plan company executives have noted before: “[W]e will continue to develop smaller, more flexible store formats to allow us to serve guests in markets that can’t accommodate our larger store sales. We’ll continue our expense optimization efforts. Our goal is not to cut our way to prosperity, but to free up resources we can leverage in support of the faster growth.”
The discounter’s financial results showed how far the company once renowned for its hip products and savvy marketing — which stirred consumers to nickname it “Tar-jay” — has slipped. For the three months ended May 3, Target reported net earnings of $418 million for the first quarter, from $498 million a year ago. Net sales rose 2.1 percent to $17.1 billion from $16.7 billion. U.S. comparable-store sales fell 0.3 percent in the period.
The earnings missed Wall Street estimates, with earnings per share dropping to 66 cents from 77 cents. On an adjusted basis, EPS was 70 cents, 1 cent below analysts’ consensus of 71 cents.
The quarter’s results were impacted by losses at its Canadian business, as well as the costs connected with last year’s data breach that impacted millions of consumers. Target said it is unable to estimate future expenses related to the fourth quarter’s data breach.
The discounter did lower its forecast for adjusted EPS for fiscal year 2014, reflecting operating results for its U.S. and Canadian business units, to $3.60 to $3.90, from prior guidance of $3.85 to $4.15.
For the second quarter, the company is predicting adjusted EPS of between 85 cents and $1.
While there’s still much work to be done, Mulligan told analysts, “[We’re] in a much better position today than we were just three months ago,” noting that traffic and sales trends have “improved substantially.” He said comps at U.S. stores for the second quarter are expected to be “flat to slightly positive.”
Executives on the conference call didn’t elaborate on what would be done to improve operations at its Canadian unit other than a new format for its weekly circular and new marketing campaigns for its consumables business. Target on Tuesday fired the head of the Canadian division, Tony Fisher, and named Mark Schindele to succeed him.
Executives also noted the promotions and incentive events that were featured over the past quarter at its U.S. stores, such as a spring-cleaning event and a buy-one-get-one-half-off shoe sale. They said Target plans to roll out enhanced apparel displays to 50 additional stores this summer, and several hundred more stores in the fall. Meanwhile, digital visits were up more than 20 percent from a year ago, and the share of digital visits from a mobile phone or tablet continues to grow. But growth in transactions in the digital channel came at the expense of declining traffic trends in the U.S. stores.
Shares of Target rose 1 percent to close at $57.20 in trading on the Big Board.