On Feb. 25, retail giant Target Corporation (TGT, Financial) announced the results for fourth quarter ended Jan 31, 2015 on a mixed note. There were both positive and somber news.Ă‚
Overview of the last quarter
Sales rose by 4.1% to $21.8 billion, up from $20.9 billion in the corresponding quarter last year, slightly above the management and street expectations of $21.6 billion. The encouraging numbers materialized through increased foot falls (rise of 3.2%) in the stores and an aggressive push through digital channels. The crucial holiday season accounted for most part of it. Digital sales accounted for 0.9% of the total revenue earned during the quarter. Adjusted earnings, excluding costs from discontinued operations, were $1.50 a share, an increase of 14.5% from $1.31 per share in the fourth quarter of the previous year. The figure beat analyst expectations of $1.46 a share. Adjusted EPS for the fourth quarter stood at $1.50 a share, above Target’s recent guidance figure of $1.43 to $1.47 per share. Transactions rose by 3% in the last quarter, against 6% drop in the corresponding quarter at of 2013, when a data breach kept shoppers away.
The company reported a loss of $2.6 billion in this quarter which translated to $4.10 a share, primarily due to the impact of closings stores in Canada. This news overshadowed the positives of the stock. Target had made a profit of $520 million in the corresponding quarter of 2013.
Annual highlights
Despite the disappointing Canadian numbers, the company managed to tide over the negativity with reports of 1.9% increase in the overall sales for the year. This year, Target made sales worth $72.6 billion as against $71.3 billion last year. The adjusted EPS for the entire year stood at $4.27 a share, which is 2.6% reduction from $4.38 a share reported last year. The company incurred annual expenses of $191 million against $145 million last year. A forgettable episode of data breach happened in the last quarter of 2013 and the resultant legal fees led to this spike in expenses this year. Target managed to offset this amount by $46 million in insurance receivables. Digital channel sales growth of more than 30% contributed almost 0.7 percentage points to 2014 comparable sales growth. The company paid $1.2 billion in annual dividend for 2014, a jump of 19.8 % from the 2013 figure.
The Canada debacle in brief
Target failed to repeat the U.S. charm in Canada due to empty shelves and inconsistency in price tags, which lead to a backlash from the Canadian shoppers and apathy towards the brand. It is worth noting that Target had opened up stores in Canada in 2013 and had to shut the business in 2014. The quantum of investment and the corresponding loss margin forced the company to take a hurried exit decision from Canada.
Strategically correct moves
Target identified the Canadian fiasco and took the correct decision to exit before it marred the company’s future. Any further delay in taking this decision would have ruined the case for Target and its investors very badly.
Recognising the consumer trend, the retail chain has invested significantly to provide its customers with digital experiences, apps and the possibility of seamless shopping between stores and online shopping. For example, a customer makes an online purchase and picks up the inventory from the store. This move is also seen as a balancing step taken by Target to win back the customer confidence, which had dipped after the data breach issue last year.
Before the quarter results, Target also announced free shipping on orders of $25 or more year-round. During the holidays, the chain offered free shipping on all orders. The company is putting in all efforts to win back customers by showcasing new merchandise.
Target’s marketing strategy to offer free shipping has given it an edge over its competitors Wal-Mart (WMT, Financial) and Amazon (AMZN, Financial).
Final Take
Target was burned in the Canada venture, but it made a wise decision to cut further losses and pack its bags in time. The data breach in the domestic market too was a forgettable chapter. Target learned from its mistakes and took corrective steps to bounce back. Customers and investors expect Target to be more mindful in the future before spreading itself too thin, and instead concentrate on fortifying its position in the U.S. And the company has certainly shown wisdom and maturity in overcoming obstacles and maneuvering the difficult times. The numbers are back to green and Target has hit the right chord with its customers. Investors are advised to buy or remain invested as the brand has a lot more ammunition in its gun.
