On Apr 7, 2014, we issued an updated research report on
) following the company's fourth-quarter fiscal 2013 results.
Target posted fourth-quarter adjusted earnings of $1.30 per share
that fell 21.2% from $1.65 earned in the year-ago quarter. This
relates to results from U.S. operations only.
The quarterly earnings including the U.S. and Canadian
operations but excluding other one-time items came in at 90 cents
a share, sharply down from $1.47 reported in the prior-year
quarter. The Zacks Consensus Estimate was pegged at 85 cents a
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Total revenue fell 5.3% to $21,516 million from the prior-year
quarter and came short of the Zacks Consensus Estimate of $21,541
Management hinted that security breach affected the quarterly
performance. Last December, Target faced its worst security
breach that affected nearly 70 million of its customers. The news
of the breach had a profound impact on holiday sales and thereby
on fourth-quarter results as well.
Further, fallout from the breach is likely to keep traffic at bay
for some more time and may result in potential costs (litigation,
compensation, and so on.) during the first half of fiscal 2014,
thereby putting Target's revenues and margins under pressure. The
company has been slapped with 80 civil lawsuits. We believe that
it will take some time before effects of the breach get
This has triggered sharp downward estimate revisions. The Zacks
Consensus Estimate for both fiscal 2014 and 2015 fell 7.8% to
$4.02 and $4.75, respectively, over the last 60 days.
Lack of geographical diversification is another concern. Unlike
its competitors such as
Wal-Mart Stores Inc.
Costco Wholesale Corporation
), which have a globally diversified footprint, Target has its
operations concentrated mainly in the United States. It was only
last year that the company ventured into Canada.
Target's much anticipated Canadian expansion met with
disappointing results as it reported an operating loss of $941
million in its first year.
However, management expects a turnaround in fiscal 2014 as the
company now has a better inventory position and plans to launch
marketing and merchandising initiatives to promote brand
awareness and provide a vast assortment of products at
competitive prices. This is likely to drive overall profitability
and sales. Target is looking to expand further by launching
smaller format stores like Target Express and CityTarget stores.
Target has adopted an aggressive cost reduction strategy. The
company plans to reduce $1 billion in annualized costs by 2015,
out of which $200 million have already been achieved in 2013. The
savings is expected to improve margins, going forward.
Target now carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Another better-ranked retail stock worth investment is
Barnes & Noble, Inc.
), which sports a Zacks Rank #1 (Strong Buy).