News

aNb Media News, January 14, 2014

Trending on TimetoPlayMag.com: Action Figures

Starting today, TimetoPlayMag.com (that’s us!) will showcase what’s trending in specific product categories in these news alerts. A new category will appear in each news alert throughout 2014. Today we start with what’s trending in ACTION FIGURES. This trending list is determined by consumers. It’s the number of page views for that item in the previous 30 days.

TRU Reports Holiday Sales Results

Toys “R” Us, Inc., reported its comparable store net sales for the five-week and nine-week periods ended January 4, 2014. For the five-week period ended January 4, 2014, the Domestic segment reported a comparable store net sales increase of 1.8 percent. The learning, seasonal, and core toy categories generated the strongest comparable store net sales growth. Internationally, comparable store net sales declined 1.1 percent for the five-week period ended January 4, 2014. Australia, China, and Southeast Asia experienced positive comparable store net sales growth, offset by softness in Japan, Canada, and Europe.

Comparable store net sales for the nine-week period ended January 4, 2014, decreased 4.7 percent in the Domestic segment and 3 percent in the International segment. The nine-week Domestic comparable store net sales change is lower than the five-week change, due mainly to the late timing of Thanksgiving this year versus the prior year which partially benefitted the current year five-week period. Internationally, Australia, China, and Southeast Asia experienced positive comparable store net sales growth, offset by softness in Japan, Canada, and Europe.

Target Announced Updates on Q4 Outlook; Data Breach

Target announced updates on its continuing investigation into the recent data breach and its expected fourth quarter financial performance.

As part of Target’s ongoing forensic investigation, it has been determined that certain shopper information (separate from the payment card data previously disclosed) was taken during the data breach.

Target says this theft is not a new breach, but was uncovered as part of the ongoing investigation. At this time, the investigation has determined that the stolen information includes names, mailing addresses, phone numbers, or email addresses for up to 70 million individuals. Much of this data is partial in nature, according to Target.

Target also provided an update to its expected fourth quarter 2013 financial results. In its U.S. segment, Target now expects fourth quarter 2013 adjusted EPS of $1.20 to $1.30, compared with prior guidance of $1.50 to $1.60. This outlook anticipates a fourth quarter 2013 comparable sales decline of approximately 2.5 percent, compared with prior guidance of approximately flat comparable sales. The updated sales expectation reflects:

• Stronger-than-expected fourth quarter sales prior to the company’s December 19, 2013, announcement of a payment card data breach;

• Meaningfully weaker-than-expected sales since the announcement, which have shown improvement in the last several days, and;

• A comparable sales decline of two percent to six percent for the remainder of the quarter.

• Prior to the announcement of the payment card data breach, fourth quarter REDcard penetration was in line with year-to-date trends. Since the announcement, penetration growth has moderated but remains hundreds of basis points stronger than a year ago.

Target says it is not able to provide an update to its expected fourth quarter 2013 GAAP EPS, however, GAAP results are expected to include:

• Five to 10 cents of dilution related to store closings, real estate impairments, and similar discrete events;

• Approximately 45 cents of dilution related to the company’s Canadian segment, compared with prior guidance of 22–32 cents, driven by the gross margin impact of continued efforts to clear excess inventory, and;

• Net dilution of one cent due to the expected reduction in the beneficial interest asset related to the sale of its credit card portfolio, partially offset by the resolution of income tax matters.

• In addition, fourth quarter 2013 GAAP EPS may include charges related to the data breach. At this time, Target says it is not able to estimate the costs, or a range of costs, related to the data breach. Costs may include liabilities to payment card networks for reimbursements of credit card fraud and card reissuance costs; liabilities related to REDcard fraud and card re-issuance; liabilities from civil litigation, governmental investigations, and enforcement proceedings; expenses for legal, investigative, and consulting fees; and incremental expenses and capital investments for remediation activities. These costs may have a material adverse effect on Target’s results of operations in fourth quarter 2013 and/or future periods.

Target also announced that it plans to close eight U.S. stores on May 3, 2014. The stores affected by this announcement are located in: West Dundee, Ill.; Las Vegas, Nev.; North Las Vegas, Nev.; Duluth, Ga.; Memphis, Tenn.; Orange Park, Fla.; Middletown, Ohio; and Trotwood, Ohio.

Sears/Kmart Updates its Performance

Sears Holdings Corporation (SHC) announced an update on its quarter-to-date performance and financial position. During the quarter, the retailer says it continued to proactively transform its business to a member-centric integrated retailer leveraging the Shop Your Way (SYW) program and platform. As previously stated, SHC is transitioning from a business that has historically focused on running a store network into a business that provides and delivers value by serving its members in the manner most convenient for them. SHC is driving this transformation by investing in capabilities to enable members access to the broadest possible assortment of products and services, enhancing membership benefits associated with SYW, developing digital and social relationships with members, using data and analytics to make targeted offers and decisions delivered in real time and expanding reach through marketplace and delivery options.

Total domestic comparable store sales for the quarter-to-date period declined 7.4 percent, comprised of decreases of 5.7 percent at Kmart and 9.2 percent at Sears Domestic. Kmart’s quarter-to-date comparable store sales decline reflects declines in most categories including consumer electronics, grocery and household, and toys. Sears Domestic’s quarter-to-date comparable store sales decline is attributable to decreases in most categories including consumer electronics, tools, and home appliances. Sears Canada comparable store sales for the quarter-to-date period ended January 6, 2014, were down 4.4 percent.

SHC currently expects its reported net loss attributable to Holdings’ shareholders for the quarter ending February 1, 2014, will be between $250 million and $360 million, or between $2.35 and $3.39 loss per diluted share. This includes $41 million of pension expenses, $29 million for store closures and severance, and $12 million from gains on sales of assets. Adjusted for these items, net loss is expected to be between $213 million and $316 million, or between $2.01 and $2.98 loss per diluted share. The ranges exclude the impact related to the Sears Canada real estate transactions previously announced, restructuring activities including severance, store closings, and impairment charges, an estimated non-cash charge of approximately $145 million related to the establishment of an additional valuation allowance against state separate entity deferred tax assets, as well as other tax-related matters and any non-cash impairment charges for fixed assets. In the fourth quarter of the prior year, the company reported a net loss attributable to Holdings’ shareholders of $489 million, or $4.61 loss per diluted share, which included a non-cash charge of $455 million related to pension settlements, non-cash impairment charges of $330 million and other adjustments.

For the full year ending February 1, 2014, SHC expects reported net loss attributable to Holdings’ shareholders will be between $1.3 billion and $1.4 billion, or between $11.85 and $12.88 loss per diluted share, which includes the fourth quarter-to-date items noted above, as well as the year-to-date adjustments disclosed in third quarter 10-Q report filed on November 21, 2013. Adjusted for these items, net loss is expected to be between $811 million and $914 million, or between $7.64 and $8.61 loss per diluted share. The ranges exclude the impact related to the Sears Canada real estate transactions previously announced, fourth quarter restructuring activities including severance, store closings and impairment charges, an estimated non-cash charge of approximately $145 million related to the establishment of an additional valuation allowance against state separate entity deferred tax assets, as well as other tax-related matters and any non-cash impairment charges for fixed assets. For the full year ended February 2, 2013, the company reported a net loss attributable to Holdings’ shareholders of $930 million, or $8.78 loss per diluted share, which included a non-cash charge of $455 million related to pension settlements, a non-cash impairment charge of $330 million and other adjustments.

As of January 4, 2014, SHC had total cash of approximately $1 billion and availability under credit facilities of $2.3 billion ($1.8 billion under domestic facility and $0.5 billion under Sears Canada facility, prior to taking into consideration possible reserves) and $6 million in commercial paper outstanding, with commercial paper capacity of $500 million. The cash balance does not include $300 million Canadian in proceeds from the Sears Canada real estate transactions announced on November 11, 2013, which were expected to be received on January 10, 2014.

As previously announced, SHC is evaluating separating both Lands’ End business and Sears Auto Center business.

SHC currently plans to release financial results for its fiscal 2013 fourth quarter and full year on or about February 27, 2014.