Target is Bad News

Things have not been going well for Target due to the data breach and their lower than expected results in Canada. The data breach that was announced on December 19th has lowered revenues, added costs related to the breach, and lowered consumer confidence, causing Target to lower its Q4 EPS dramatically from previous guidance of $1.50-$1.60 to $1.20-$1.30. Comparable sales are expected to come in down between 2-6%. Consequently, management had to revise its full fiscal year EPS expectations from $4.70-$4.90 to $4.59-$4.69. Target is facing many challenges assimilating their new stores into Canada. Problems in the U.S. have also arisen, primarily attributed to uncertain income growth. Many shoppers have complained that Targets prices are higher in Canada when compared to its U.S. counterparts. On top of bloated pricing model in Canada, competitors, including Walmart, is beginning to drop its prices for thousands of products to keep its market share in the Canadian market. The chances of Target benefiting from its expansion into Canada are growing slimmer and the future is becoming riskier. Target has considerably underperformed the SPDR Consumer Staples ETF, Costco, and Walmart over the last twelve months. Additionally, Target’s recent troubles will lead to uncertainties of returning value to its shareholders in this turmoil period. The UASBIG thesis behind the Target investment no longer holds true, leading the group to take its profit and SELL out of our full position. -Kristen Pfaffe