Target Q1 profit down 16% amid breach costs, Canada troubles
Minneapolis — Target Corp. posted a 16% drop in first quarter earnings as costs related to its data breach and the company’s troubled Canadian operations continue to take a toll on its overall performance. The retailer also cut its annual profit forecast and released a second quarter projection below Street expectations. On a positive note, Target’s same-store sales metric improved from the last quarter.
Target earned $418 million in the quarter ended May 3, down from $498 million in the year-ago period. Revenue rose 2.1% to $17.1 billion. Target’s Canadian operations had sales of $393 million, up from $86 million last year.
Same-store sales edged down 0.3%, better then the 2.4% drop in the chain’s fourth quarter.
Target said it incurred $26 million in costs related to the breach. Approximately $8 million of those costs were covered by insurance.
“While we are pleased with this momentum, we need to move more quickly,” said Target president and interim CEO John mulligan. “As a result, we have made changes to our management team and are investing additional resources to drive U.S. traffic and sales, improve our Canadian operations and advance our ongoing digital transformation. We have updated our 2014 earnings expectations to reflect the impact of these investments and believe that they position Target for accelerated profitable growth as a leading omnichannel retailer.”
On Tuesday, Target made changes to its management team and replaced the head of its Canadian operations.
American Eagle to close 150 stores
Pittsburgh – On the heels of disappointing results for the first quarter of fiscal 2014, American Eagle Outfitters Inc. has decided to close 150 stores in America, including 100 namesake stores. For 2014, the company is planning to close approximately 50 American Eagle and 20 aerie stores in North America.
Beginning in 2015, the company anticipates annualized after-tax savings of approximately $10 million-$15 million related to these store closures.
American Eagle’s net income plummeted 86% to $3.87 million from $27.98 million. Total net revenue fell 5% to $646.13 million from $679.48 million.
Same-store sales fell 10%. A significant decline in pretax income drove American Eagle’s net income drop.
“Results were consistent with our expectations,” said Jay Schottenstein, interim CEO. “The quarter reflected weak sales and increased markdowns. We are committed to improved profitability and are working hard to implement our plan to strengthen our brands, channels and operations. Specific actions underway include continuing to build strong omnichannel capabilities, rationalizing our store fleet, reducing expenses, growing international licensed stores, and most importantly, delivering great merchandise and customer experience across our brands. Our focus is on leveraging our strong brands and talented team in order to deliver long-term profitable growth and enhanced value for our shareholders.”
Target’s Q1 Results: Give me back my Tar-zhay!
By Sandy Skrovan, U.S. Research Director, Planet Retail
On Target’s first quarter results, Sandy Skrovan, U.S. Research Director at Planet Retail, comments:
"Don’t expect a lot from Target this quarter. The data breach and subsequent fallout – including leadership turnover and ongoing shopper trust issues – weigh like an albatross around the retailer’s neck. Besides dealing with internal issues, some broader retail metrics don’t bode well for Target either, suggesting another disappointing quarter is on the cards."
"Target also has its work cut out to refocus attention on some basic retail fundamentals – e.g. inventory management, merchandise excitement, and good old friendly customer service. Out-of-stocks are becoming increasingly problematic. Some aisles beyond grocery even appear in bad shape.
"It’s taken its eye off the ball – namely,i.e. core US operations – by taking on too many new ventures all at once: Canada, urban CityTarget, online. Two years ago, Planet Retail surmised that while this combination of future growth possibilities could be quite powerful, we were concerned Target was biting off more than it could chew. I wish Target had proved us wrong, but sadly it’s not the case."
Sandy Skrovan can be reached at [email protected]