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Target 1Q profit falls 16 pct as breach takes toll

By WTOP Staff

ANNE D’INNOCENZIO
AP Retail Writer

NEW YORK (AP) — Target cut its annual profit outlook Wednesday and said its first-quarter earnings fell 16 percent as it took another hit from a massive customer data breach and a troubled expansion in Canada.

The third-largest U.S. retailer, based in Minneapolis, also issued a second-quarter profit projection below analysts’ expectations.

Target also said it doesn’t expect its six straight quarters of traffic declines to reverse this year in what analysts say is the most tumultuous time in its history.

Still, there are some encouraging signs. A key revenue metric improved after tumbling shortly after the data breach, which compromised the credit card and personal information of millions of customers and exposed big security flaws.

But Target accomplished that by stepping up discounts, such as offering five 12-packs of Coke products for $10, its lowest price in more than a decade. Such heavy discounting squeezed profit margins in the quarter.

The news comes a day after the retailer fired the president of its troubled Canadian operation and two weeks after the abrupt departure of Target CEO Gregg Steinhafel.

Chief Financial Officer John Mulligan took over as acting CEO while Target searches for a new permanent leader.

In the meantime, Mulligan outlined three priorities: revitalizing Target’s U.S. business by constantly testing new products; becoming a digital leader to cater to shoppers jumping back and forth from online to physical stores; and improving operations in Canada.

“We need to listen to all of them (shoppers), how they’re feeling, what they want and how well we’re serving them,” Mulligan told investors Wednesday.

Still, whoever takes over the permanent reins of Target will have to contend with not only Target’s specific issues but also broader challenges affecting the retail industry.

Stores, particularly those that cater to the low- to middle-income customers, are wrestling with a slowly recovering economy that’s not benefiting all Americans equally. Retailers also face a shifting landscape where mobile shoppers want more flexibility in where and how they buy.

But Target’s problems run deep.

Target, known for its cheap chic fashions and home accessories, was a darling in retailing up until the Great Recession, but was knocked off its perch. Rivals have copied its strategy of teaming up with designers for affordable collections.

At the same time, Target hasn’t been able to ditch the perception that its prices on staples are much higher than other discounters like Wal-Mart.

Target also faces uncertainty about costs related to the pre-Christmas data breach. The company said that it incurred $18 million of net expense in the first quarter of 2014, reflecting $26 million of expenses partly offset by the recognition of $8 million in expected insurance reimbursement.

Those costs, however, do not include potential claims by the payment card networks for fraud losses tied to the breach. The company said it was unable to estimate future expenses related to the data breach.

The company has responded to the breach by overhauling security and technology. The company has also been accelerating its $100 million plan to roll out chip-based credit card technology, which is considered more secure, in all of its nearly 1,800 stores.

As for Canada, the company needs to fix inventory shortages and other problems. On Tuesday, Target announced it replaced Tony Fisher with 15-year company veteran Mark Schindele, who was senior vice president of merchandising operations.

“We have not lived up to our potential or expectations over the last year and a half,” he told reporters in a separate call.

Toronto-based Antony Karabus, president of Hilco Retail Consulting, noted Target is “sending a real message” that it is serious about correcting the Canadian business, but he expects it will take up to two years.

As for catering to tech-savvy shoppers, Target has been slow to embrace the new landscape. But Mulligan said Target will move more quickly to test online shopping programs and get them into broad use. In fact, Target will test $10 rush delivery in June in the Minneapolis, Boston and Miami markets, offering customers the ability to order as late as 1:30 p.m. and receive a delivery of qualifying items between 6 p.m. and 9 p.m. the same day.

The first-quarter results show Target still has a lot of work to do.

Target says it earned $418 million, or 66 cents per share, in the quarter ended May 3. That compares with $498 million, or 77 cents per share, a year earlier.

Adjusted earnings results were 70 cents per share.

Revenue rose 2.1 percent to $17.1 billion.

Analysts had expected profit of 71 cents on revenue of $16.97 billion.

Revenue at stores open at least a year slipped 0.3 percent, better than the 2.5 percent drop in the fourth quarter. Customer traffic fell 2 percent in the quarter, offset by a 2.1 percent increase in the average transaction amount.

Target said it expects second-quarter earnings per share between 85 cents and $1, given the costs that the company faces. Analysts had expected $1.02 per share.

It also said it now expects earnings per share for the full year to be $3.60 to $3.90. That’s down from previous guidance of $3.85 to $4.15 per share. Analysts had expected $3.99.

Shares rose 59 cents to close at $57.20 Wednesday. The stock is down 9.6 percent so far this year.

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Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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