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Feb 25, 2015 10:35 AM

Target reports 4Q loss on Canada pullout; outlook cautious

The Associated Press

NEW YORK (AP) Target Corp. delivered a cautious profit outlook for the first quarter and reported a loss in its fourth quarter, dragged down by costs to end its money-losing foray in Canada.

But the discount retailer recorded stronger-than-expected sales during the holiday period as shoppers bought more clothing and other items.

The results, which included the second consecutive increase in a key sales measure in a year, come a little more than a month after the discounter announced it was giving up on Canada and focusing on revving up its U.S. business.

The closing was the first major move by CEO Brian Cornell, who took over last August and who is charged with reclaiming the retailer's image as a purveyor of cheap chic fashions.

The results also show how the Minneapolis-based company is successfully moving past a massive data breach disclosed a week before Christmas 2014 that compromised millions of credit and debit cards. That caused shoppers to flee for months and hurt sales and profits. It was one of the major reasons behind the abrupt departure of CEO Gregg Steinhafel, who resigned last May.

Target's business is benefiting as middle-income shoppers are feeling some relief from lower gas prices and from an improving economy. But Target says that its moves to bring in trendier merchandise and cater to shoppers who are increasingly going online have been the bigger factors behind stronger sales.

The discounter has been playing catch-up online and revamping its apps. It also reduced its minimum online purchase to qualify for free shipping in half to $25. Target had a successful shopper reception to its free shipping offer with no strings attached over the holiday season.

During a media call, Chief Financial Officer John Mulligan emphasized that Target shoppers who buy online and in stores spend more and are more engaged. Digital sales increased 30 percent during the quarter. He noted that Target's online sales account for about 2.5 percent to 3 percent of the company's total sales.

Even before Cornell took the helm, Target had begun to reassess its operations, sprucing up its baby departments and adding mannequins to its fashion areas. Cornell wants to double down on a handful of areas like children's products and furniture. It is also re-imagining its grocery area and wants to focus on products unique to Target.

Target is set to unveil more details of its strategy to investors on March 3. That will include cost-cutting moves, but Mulligan did not elaborate during the media call Wednesday.

The company said that it lost $2.6 billion, or $4.14 per share, in the three months ended Jan. 31. That compares with a profit of $520 million, or 82 cents per share a year earlier.

Excluding costs to exit Canada and other one-time items, Target's adjusted earnings were $1.50 per share. Analysts polled by FactSet expected $1.46 per share. Target is now liquidating all 133 stores after entering Canada just two years ago.

Revenue rose 4.1 percent to $21.7 billion. Revenue at stores opened at least a year rose 3.8 percent. The measure is considered a key indicator of a retailer's health.

Shares rose 2 cents to $79.97 in morning trading.


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