Target Slips on Q2 Preliminary Guidance Cut & Higher Expense

Zacks

Shares of Target Corp. (TGT) dipped 4.4% yesterday as the retail giant made few preliminary announcements on its second-quarter 2014 results, including recording higher expenses and lowering earnings per share outlook.

Owing to the data breach experienced by Target during late last year, the company expects to record gross expenses of $148 million in second-quarter 2014. However, it anticipates receiving partial relief on account of insurance receivable worth $38 million.

Management foresees the second quarter to witness a hike in expenses owing to accrued and potential claims, like those by payment card networks, on account of the breach.

As per sources, the company has been recording significant costs ever since its computer systems got hacked and its customers’ credit card information was stolen in Dec 2013. The company has been attributing a part of breach-related expenses to consulting, legal and credit monitoring services.

Moreover, the company made a $1 billion payment as an early debt retirement in the second quarter, which resulted in a pre-tax loss of $285 million for Target. This will be noted as net interest expense in second quarter 2014.

Following the ongoing impact of its data breach and the aforementioned predictions, this general merchandise retailer lowered its earnings per share outlook for the second quarter. It now projects adjusted earnings to be roughly 78 cents a share, as compared to a range of 85 cents to $1.00 forecasted earlier. The current Zacks Consensus Estimate for the same is pegged at 83 cents a share, subject to a downward revision.

On a GAAP basis, the company envisions earnings to be nearly 37 cents.

Adjusted earnings guidance was lowered as management now expects flat same-store sales at the company’s U.S. segment, coupled with earnings before interest, taxes, depreciation and amortization (EBITDA) margin coming in at a lower-than-expected rate. Also, management anticipates sales to remain soft at the company’s Canadian segment as the breach has shaken consumer confidence, resulting in lesser footfall and a public relations nightmare for the company.

Apart from the security infringement, a tepid foray into the Canadian market, weak e-commerce sales and the subsequent dismal quarterly performances have been a setback for this Zacks Rank #4 (Sell) company, making it difficult to compete with giants like Family Dollar Stores Inc. (FDO), Dollar General Corporation (DG) and Amazon.com Inc. (AMZN).

However, with Brian Cornell being elected as the next Chief Executive Officer (CEO) and Chairman, management is hopeful of battling near-term headwinds. It remains focused on undertaking initiatives to drive consumer traffic, in order to drive results by transforming into a leading omnichannel retailer.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.

Be the first to comment

Leave a Reply