Despite the massive data breach that hurt Target’s fourth quarter, people are not staying away from the retailer. According to a Reuters report, the company saw a dramatic improvement in traffic in the first quarter compared to its late fourth-quarter trends.
The company’s first-quarter financial performance in its U.S. and Canadian segments was in line with expectations, and according to interim president and CEO John Mulligan, reflects not only its continued recovery from the data breach but also early signs of improvement in its Canadian operations.
“While we are pleased with this momentum, we need to move more quickly,” said a cautiously optimistic Mulligan, who is also the company’s CFO and is temporarily filling in as chief executive while the company seeks a replacement for the ousted Gregg Steinhafel. “As a result, we have made changes to our management team and are investing additional resources to drive U.S. traffic and sales, improve our Canadian operations and advance our ongoing digital transformation. We have updated our 2014 earnings expectations to reflect the impact of these investments and believe that they position Target for accelerated profitable growth as a leading omnichannel retailer.”
U.S. sales for the quarter increased 0.2% to $16.7 billion from $16.6 billion last year, reflecting the contribution from new stores partially offset by a 0.3% decrease in comparable sales. First quarter gross margin rate was 29.5% compared with 30.7% in 2013, driven primarily by additional promotional markdowns this year.
The company’s Canadian segment generated sales of $393 million, compared with $86 million in first quarter 2013 when Target opened its first 24 Canadian stores. The first quarter 2014 gross margin rate of 18.7% reflects the continued impact of efforts to clear excess inventory, including long lead-time receipts. This compares to first quarter 2013 gross margin rate of 38.4%, which benefitted from a lack of clearance markdowns due to the short time stores had been open.
Heading Canadian operations now is company veteran Mark Schindele. He replaces Tony Fisher, whom the company terminated this week.
Target incurred $18 million of net expense in first quarter 2014 thanks to the data breach — during which an intruder gained unauthorized access to its network and stole payment card and other customer information — reflecting $26 million of total expenses partially offset by the recognition of an $8 million insurance receivable.
The expense does not include any accrual for the potential claims by the payment card networks for counterfeit fraud losses, the company said, adding that the amount accrued to date for probable losses on potential payment card network claims consists solely of operating expense reimbursement obligations. Target also added that at this time, it is unable to reasonably estimate a range of possible losses on the payment card networks’ potential claims in excess of the amount accrued.