The U.S. consumer confidence index rose to 100 in the first quarter of 2014. Also, consumer spending increased by 0.9% in March, higher than 0.3% jump in February. This indicates that people are willing to open their wallets and spend their hard-earned dollars. Also, claims of jobless benefits have been reduced, which further makes things look brighter. However, there are retailers who continue to feel the pressure of lower demand, leading to lower sales.
For instance, big box retailers such as Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) are witnessing sluggish demand, especially in the U.S. One of the key reasons for slowing demand was harsh winter conditions which kept customers at home, resulting in lower store traffic. Therefore, Target’s first quarter results were mixed.
By the Numbers
Revenue climbed 2% over last year, clocking in at $17.05 billion. Although the top line met the Street’s estimate, the bottom line fell short by a penny. Adjusted earnings stood at $0.70 per share as against the earnings of $0.77 per share last year. The primary reason for a decline in earnings was the data breach which happened just before Christmas last year. This led to a loss of credit information of millions of customers, leading to higher costs. This increase in cost of data theft weighed on the bottom line, especially during the most important holiday season.
Also, the company lost customers’ trust, leading to lower footfall. In fact, the number of transactions decreased 2.3% during the quarter. However, higher transaction amounts of 2.1% partially offset the decline, resulting in a same store sales drop of 0.3%.
Nonetheless, the retailer managed to register growth in sales because of its ramped-up promotional efforts. In order to win back lost customers, the company provided heavy discounts on its products. The prices were much below other retailers’ price, attracting shoppers’ attention.
Canada Deters Growth
However, the biggest mistake on Target’s part was its rapid expansion in Canada. The retailer opened more than 100 stores in Canada in the last year. But new store openings did not lead to higher sales as people were disappointed with its service. Also, there were not enough inventories to meet customer demands. Hence, supply chain of the Canadian stores was a matter of concern. Moreover, Target’s price was not as competitive as that of other retailers in the region such as Wal-Mart. Therefore, the valueconscious shoppers preferred to shop at other retailers’ stores instead of Target’s.
Also, Target needs to strengthen its online operations since its e-commerce capacities are not up to the mark. On the other hand, peer Wal-Mart is doing a good job in its online business, wherein its sales surged 27% in its recently reported quarter.
Target revised its outlook downward, which disheartened its investors. It now expects earnings of $3.60 to $3.90 per share, much lower than the previous expectation of $3.85 per share to $4.15 per share.
Despite all the prevailing problems, Target managed to register top-line growth. However, worries seem to be endless with the loss in Canadian operations. Also, the data breach has posed a number of threats. Still, the company is taking measures to overcome it by marketing heavily. Also, a cut in outlook came as an added worry for the investors. Hence, Target looks unhealthy to be invested in at this juncture.