After a disastrous winter, Target Corp.TGT -2.88% is taking a Mulligan.
His first name is John and he has indicated his role as Gregg Steinhafel’s replacement as the retailer’s chief executive, announced May 5, is temporary. Clearly no duffer, Mr. Mulligan shook things up this week by reshuffling Target’s executive ranks, most notably atop its flailing Canadian unit.
The problems he faces go beyond the now fading impact of last year’s data breach, as first-quarter results should highlight. Target is seen reporting earnings of just 72 cents per share for the period through April, down from 77 cents a year earlier.
That performance would be par for the course among peers. Wal-Mart Stores Inc.WMT -1.20% last week reported its fifth consecutive quarter of declining same-store sales. Its first-quarter earnings, covering the same period Target will report, fell by 5% compared with a year earlier. Earnings per share for the same period at Kohl’s Corp.KSS -1.30% fell by 15%.
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Target’s perverse advantage is that investor expectations are low, while the data breach and its fallout have created a sense of urgency. Furthermore, another big drag on its earnings should ease.
Target’s rapid expansion into Canada has been costly; it led to losses of about 40 cents a share at the parent-company level in the fourth quarter. That compares with overall earnings of 81 cents a share for that period. Some analysts expect the Canadian operations to make a positive contribution by 2015. Even breaking even would help earnings considerably.
There are no such excuses for Target’s mature U.S. business. But at least it is in a sweeter demographic spot than Wal-Mart.
Slow middle-class wage growth, recent benefit cuts and a preference by low-income consumers for small-format stores have squeezed Wal-Mart. Those are less an issue for more upscale Target. Nearly 39% of households that shop at Target earn over $75,000 annually, compared with 27% at Wal-Mart, according to a recent analysis by Prosper Insights & Analytics.
Target’s share performance since December’s breach leaves it looking cheap compared to peers. While nobody expects Mr. Mulligan to remedy that overnight, he has a unique opportunity to take bold steps.
It certainly helps that he is perhaps the only chief of a major retailer without a target on his back.
Corrections & Amplifications
Data on the household income of Target and Wal-Mart shoppers were provided by Prosper Insights & Analytics. An earlier version of this article misstated the firm’s name as Prosper Insight & Analytics.
Date: May 20, 2014