Earnings at Target Disappoint; Lowe’s Cuts Sales Outlook

Posted by Unknown on Wednesday, August 20, 2014

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Business Day |Earnings at Target Disappoint; Loweâ€™s Cuts Sales Outlook

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A disparate batch of retail companies released lackluster, mostly disappointing earnings results on Wednesday, accompanied by a significantly lowered forecast from Target and more store closings from Staples.

Target released the roughest results on Wednesday, with a huge slide in profits, which comes on the heels of several difficult quarters. To explain the unsatisfying results, executives pointed to continued difficulty in the companyâ€™s push in Canada, where quarterly sales at its existing stores fell 11.4 percent over the same period a year earlier, as well as a consumer base that continues to be cautious.

â€œNo one is happy with our current performance,â€ said the companyâ€™s new chief executive, Brian Cornell, who was appointed about three weeks ago. â€œOur focus right now is to make sure weâ€™ve got plans in place in the short term to improve traffic, weâ€™ve got plans in place to improve our performance in Canada, and weâ€™ve got to continue to move faster from a digital and mobile standpoint to meet the needs of our guest.â€

Targetâ€™s second-quarter results included $148 million of expenses related to the enormous breach of customer data during the holiday season last year, which has cost the company in consumer trust and in dollars. John Mulligan, Targetâ€™s chief financial officer, said total expenses related to the breach had reached $236 million, partly offset by $90 million in insurance coverage, bringing the net cost to $146 million. The company also said that it believed most of the costs related to the breach were behind it.

In Canada, where the company opened more than 100 stores in a matter of months last year, executives said that operational issues and inventory problems had persisted, creating inconsistent levels of products in some places, and that there was too much inventory overall. (One of the many changes Target made this year included firing the chief of its Canadian unit in May.)

Target reported $234 million in profits in its second quarter, down 61.7 percent from the same period last year, when profits reached $611 million. Revenue rose 1.7 percent, to $17.4 billion, up slightly from $17.1 billion a year earlier.

The retailer lowered its full-year earnings guidance to $3.10 to $3.30 per share, down significantly from its earlier guidance of $3.60 to $3.90.

On a somewhat brighter note came Loweâ€™s, the countryâ€™s second-largest home improvement retailer, whose performance depends to a significant degree on the health of the housing sector, which has shown some encouraging signs lately. Sales in the second quarter increased 5.7 percent, to $16.6 billion, up from $15.7 billion a year earlier, while sales at its existing stores increased 4.4 percent. Profits were $1.04 billion for the quarter, up 10.4 percent from the year before.

The news from Loweâ€™s was not altogether positive, however, as the company trimmed its sales growth estimate for the full year to 4.5 percent, from 5 percent. It also cut its growth estimates for sales at existing stores to 3.5 percent, from 4 percent. These results come a day after Home Depot, the countryâ€™s largest home improvement retailer and Loweâ€™s primary rival, reported a very strong quarter and raised its yearly earnings guidance.

Another retailer to report earnings on Wednesday was American Eagle Outfitters, which, along with many other traditional teenage retailers like Aéropostale, has been struggling for several quarters. American Eagle performed better than expected, but those expectations were exceedingly low and made for an easy comparison. The retailer reported earnings per share of 3 cents, while analysts surveyed by Thomson Reuters had expected zero earnings per share.

â€œThe company successfully underpromised, overdelivered,â€ Richard E. Jaffe, an analyst at Stifel, wrote in a note to investors.

The struggling retailer Staples also reported earnings on Wednesday, including a 2 percent decrease in total sales. The company said that it had closed 80 of its North American stores in the second quarter and planned to close about 140 total stores during 2014. This year, Staples announced that it would close 225 stores by the end of its next fiscal year.

â€œEarnings are O.K.,â€ Ken Perkins, founder of Retail Metrics, said of the reports on Wednesday. â€œNothing to get too excited about.â€