) 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
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
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. (
), Dollar General Corporation (
) and Amazon.com Inc. (
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.
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