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The sign outside the Target store is seen in Arvada, Colorado January 10, 2014. REUTERS/Rick Wilking

Target shows signs of turnaround as sales fall less than expected

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Target Corp reported a 16 percent drop in first-quarter profit but showed signs of progress in its efforts to rebuild customer confidence in the wake of a massive theft of payment card data and a botched expansion into Canada.

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Target, which has fired both its chief executive and the head of its Canadian operation as it tries to regain its footing, reported a 0.3 percent drop in U.S. same-store sales.

Analysts had expected a fall of 1.1 percent, according to a poll by research firm Consensus Metrix.

Target shares were up 0.7 percent before the bell.

"Traffic was dramatically better than our late fourth-quarter trends," the company said.

Traffic improved throughout February and was "relatively strong" in March despite the harsh weather that other retailers have blamed for weak sales, interim Chief Executive John Mulligan said on a call with reporters.

But he said that while the company was "pleased with this momentum", more needed to be done.

"We are not where we need to be (in Canada)," he said.

Mulligan, the company's chief financial officer, replaced Gregg Steinhafel, who was ousted earlier in May after a data breach during the holiday shopping season resulted in the theft of at least 40 million payment card numbers and 70 million other pieces of customer data.

Steinhafel had also overseen Target's bungled push into Canada, where the company lost almost $1 billion last year after opening 124 stores in an unprecedented expansion that caused supply chain and other operational problems.

Target fired the head of its Canada operations, Tony Fisher, on Tuesday and replaced him with company veteran Mark Schindele.

The company lowered its adjusted full-year profit forecast to $3.60-$3.90 per share from $3.85-$4.15 per share.

Analysts on average were expecting full-year earnings of $3.98 per share, according to Thomson Reuters I/B/E/S.

Net income fell to $418 million, or 66 cents per share, in the quarter ended May 3, from $498 million or 77 cents per share, a year earlier.

Pre-tax costs related to the data breach totaled $26 million in the quarter, primarily for legal and other services. Including insurance proceeds, expenses were $18 million.

In the preceding quarter, the company incurred $61 million in pre-tax costs related to the breach.

Excluding items, the company earned 70 cents per share.

Sales rose 2.1 percent to $17.05 billion. Canadian sales were $393 million, up from $86 million in the same period last year when the company had only 24 stores north of the border.

Analysts on average were expecting earnings of 71 cents per share, on revenue of $17 billion.

Target's shares were trading at $56.98 before the bell, after closing at $56.61 on Tuesday. Up to Tuesday's close, the stock had lost 10.5 percent since the start of the year.

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