Aug. 05--Target gave a cartful of bad news Tuesday -- weak sales, lowered guidance, growing data-breach costs -- as it swept the aisles before its new CEO takes charge next week.
The Minneapolis-based discounter warned investors it will miss its earnings guidance for second quarter, which sent shares down nearly 4 percent in late trading.
Target will give full results Aug. 20. But on Tuesday, it warned that in the second quarter:
-- Data breach costs will hit $148 million, offset by $38 million in insurance payouts. That is Target's estimate of "probable losses," which it thinks will cover "the vast majority of actual and potential breach-related claims."
-- U.S. same-store sales have been "essentially flat" and profit margins have been hurt by promotions and markdowns, "as guests continue to spend cautiously and focus on value."
-- Canadian sales continue to lag, with sales "somewhat softer than expected" and brand new stores marking down prices "to clear excess inventory."
-- Target expects to earn 78 cents a share, excluding one-time items, down from the 85 cents to $1 it forecast earlier.
Next week, former PepsiCo executive Brian Cornell will start work as Target's CEO, the first outsider ever to head the discount chain. The board's decision to go outside is widely regarded as a signal that its longstanding hire-from-within system wasn't working.
Cornell "inherits a fine mess," noted Carol Levenson, director of research at Gimme Credit, a research service on corporate bonds. "Target's sales continued to be sluggish despite all its growth initiatives, and worsened materially after it disclosed a massive customer data breach in December of 2013."
Jefferies analyst Daniel Binder wrote that Target's data breach costs "appear to be less than we thought." But he's still not advising clients to buy Target stock, giving it a "hold" rating.
"While a guidedown is never good news and Target shares are weak today, we suspect bullish investors will view this as more of the same and await a turnaround plan from the incoming CEO," Binder wrote in a note to clients.
During the holiday season last year, cyberthieves broke into Target's computers and stole credit card information on up to 40 million shoppers. Another 70 million Target shoppers had other personal information stolen.
Target's financial performance has been a struggle ever since, and in May it cost then-CEO Gregg Steinhafel his job -- just one among many high-level departures and arrivals this year at Target's Minneapolis headquarters.
In many ways, Tuesday's announcement looked like a way to clear away old headaches before the new CEO starts.
John Mulligan, Target's chief financial officer and interim CEO, said in a statement, "While the environment in both the U.S. and Canada continues to be challenging, and results aren't yet where they need to be, we are making progress in our efforts to drive U.S. traffic and sales, improve our Canadian operations and advance Target's digital transformation."
Target said it was retiring $725 million in long-term debt early, giving it a pretax loss of $285 million, or 27 cents a share.
In late trading, shares of Target were down $2.41 at $58.24.
Tom Webb can be reached at 651-228-5428. Follow him at twitter.com/TomWebbMN.
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