Target reports 16% drop in earnings

Posted May 22, 2014 by Simon Crompton
Doling out deep discounts to shift shoppers back into their stores, the nationwide retailer announced a 16 percent drop in profits.
A view of the sign outside the Target store in Westminster
A view of the sign outside the Target store in Westminster
� Rick Wilking / Reuters, Reuters
The earnings drop is part of a continual downward spiral for the giant retailer, citing the absence of wary shoppers in reaction to the recent, massive data breach and large losses in its Canadian operation. Both incidents attributed to the forced exit of CEO Gregg Steinhafel earlier in May.
Adjusted earnings, excluding costs due the breach and other one-time items, were 70 cents per share, which fell just 1 cent below analyst estimates.
Target's net earnings were $418 million, or 66 cents a share this year. In the same period last year, earnings reached $498 million, or 77 cents a share.
The company generated sales of about $17 billion, a 2.1% increase over last year. Target which also sells target coupons, also announced that the massive data breach sustained over the 2013 holiday season cost the company a net $18 million in the first quarter – $26 million in expenses offset by an $8 million insurance claim.
Target wants to make fast fixes to the more critical issues of waning U.S. sales stemming from weak store traffic, an entry into our northern neighbor’s market which turned into a Canadian catastrophe, and a website that lacks technological sophistication.
This will require increased spending in promotions, supply chain improvements, and better shipping to streamline the online business.
These new challenges dominate John Mulligan’s plate. As Target’s chief financial officer and interim CEO, he is pushing to fix these issues quickly, so more positive growth can happen.
Target’s winning success up until a few years ago was the ability to provide hot products at low prices, something it has moved away from recently.
"We need to improve on what we've done historically well," Mr. Mulligan said Wednesday during a call with reporters. "While the environment is challenging, we can do better."
Target is now on the lookout for a new CEO to take Steinhafel’s place.
The first task at hand is to get shoppers back in the stores. Reduced traffic ensued immediately after the data breach issue hit the press. Over 40 million payment card numbers along with personal information were stolen in a period that spanned just before the 2013 Christmas holidays to just after.
To bring customers back into the store, they have been offering deep discounts on popular products, such as Coke; however, these promotions resulted in reductions in gross margin. They plan to continue these discounts in hopes of increasing traffic.