Target Corp., Minneapolis, is committed “to making things right” following the data breach that was discovered in mid-December, Gregg W. Steinhafel, chairman, president and CEO, told financial analysts Wednesday.
To rebuild consumer confidence, Target is conducting “an end-to-end forensic investigation” into its own processes, systems and personnel to make decisions on potential security enhancements, he explained. It’s also investing more than $200 million to accelerate adoption of advanced chip-enabled technology that will include issuing its own smart-chip credit and debit cards.
In addition, the company is working with banks, trade associations, payment processors and other retailers to share and advance best practices, Steinhafel said, and it is investing $5 million in a new coalition with the Better Business Bureau, the National Cyber Security Alliance and the National Cyber Forensics and Training Alliance “to advance public education about cyber security and the dangers of consumer scams,” he noted.
John J. Mulligan, EVP and CFO, said Target is continuing to feel the impact of the data breach on consumer sentiment and on traffic, “and we believe we will continue to see muted trends in the next few months. But the breach impact will diminish throughout the year as we engage in a vigorous effort to address concerns and provide irresistible content and offers to drive sales.”
He acknowledged that comparable-store sales — which had been running positive during the fourth quarter before the breach was announced on Dec. 19 — “turned meaningfully negative” after the announcement, though they began to recover in January, “and we believe we would have seen even more improvement had there not been extreme weather across much of the country.”
Income, sales down
For the fourth quarter, which ended Feb. 1 — a 13-week quarter compared with 14 weeks in the prior year — net income fell 46% to $520 million, and sales declined 3.8% to $21.5 billion. For the 52-week year, net income dropped 34.3% to $2 million, while sales fell 0.9% to $72.6 billion.
U.S. comps declined 2.5% during the quarter — reflecting a 5.5% decline in transactions, which was offset by an increase in average ticket, Mulligan said — and fell 0.4% for the year, “well below our expectations going into the year,” he noted, due largely to a tougher-than-expected consumer environment, the impact of the data breach, and headwinds from unfavorable weather. U.S. sales declined 6.6% to $20.9 billion for the quarter and 0.9% to $71.3 billion for the year.
Sales in Target’s 124-unit Canadian segment, which was operating for just over half a year, were $623 million for the quarter and $1.3 billion for the year — “just below expectations,” Mulligan said. The Canadian stores diluted earnings per share by 40 cents for the quarter and $1.13 for the year, he noted.
The company said it expects U.S. comps in 2014 to grow in the range of flat to positive 2% — with first-quarter comps running within that range, Mulligan said. The company anticipates total sales in Canada will double. Steinhafel said Target was focused on reducing inventory in Canada during 2013. Going forward, the primary operational focus there will be on improving its in-stock position and raising awareness for frequency categories, including grocery, he said.
According to Steinhafel, “We are pleased that sales have started to recover. And because we are in a strong financial position, we expect to absorb any near-term financial impacts while continuing to invest in projects that are key to our long-term success.”
Among those projects, he noted, are plans to open the company’s first Target Express in Minneapolis in July — a format that’s approximately 15% the size of a conventional Target, with “a carefully curated assortment” in frequency categories like food, health care, beauty and household essentials, along with discretionary categories, with an emphasis on the chain’s own brands. Steinhafel said Target will study the operational and financial results of the pilot Express store “before we determine plans to expand the format to other markets.”
Read more: Target plans 'Express' store
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