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 The board of directors removed Steinhafel on Monday, saying it
wants new leadership to help restore consumer confidence in the No.
2 U.S. discount retailer.
"You got to wonder what prompted it now. What else will come to
light," said Dieter Waizenegger, executive director, of CtW
Investment Group, which advises union pension funds with about $250
billion under management, including those owning about 3.3 million
Target shares.
The massive data breach and last year's misguided push into Canada
have already hurt profit and revenue. Analysts and shareholders
expect to hear more of the same when the company reports results May
21 for the quarter ended May 3 and worry that the company could
disclose other problems as well.
"We would hazard a guess that first-quarter sales continued to be
hurt by the data breach aftermath and that the Canada expansion is
still in trouble," Carol Levenson, an analyst with bond researcher
Gimme Credit, said in a report.
Target's shares fell 3.5 percent to close at $59.87 on Monday, a
sign investors were not convinced a change at the top alone would
solve the problems facing the company. In the year up to Friday's
close, the stock fell 13.8 percent, while the S&P 500 rose 15.6
percent.
A 35-year veteran of the company, Steinhafel, 59, had been CEO since
2008. Just two years ago, the company was celebrated as the "cheap
chic" alternative to No. 1 Wal-Mart Stores Inc.
The Minneapolis-based company named Chief Financial Officer John
Mulligan as interim chief executive, and Roxanne Austin, a member of
the board of directors, as interim non-executive chairwoman of the
board.
The company said it hired recruiting firm Korn Ferry to help the
board find a new CEO, indicating it is open to finding an outsider
to guide it out of its current malaise, rather than pulling its next
CEO from its executive ranks as it did when it promoted Steinhafel
from president.
FBR Capital Markets analyst Daniel Ives said he believed Steinhafel,
who will stay on in an advisory role for a while, is the first CEO
to be removed following a major data breach.
The timing of the sudden change in leadership, given all the
problems that Target is facing, is hardly ideal, said Moody's
Investors Service, the credit rating firm.
"We believe this to be a very inopportune time for a change at the
top of Target, given the challenges the company is facing on
multiple fronts," Moody's Vice President Charles O'Shea said.
FALLING PROFITS
The most pressing tasks facing Steinhafel's successor include fixing
Target's Canadian operations. Last year, it opened 124 stores along
with three distribution centers in Canada, its first market outside
the United States. No retailer has ever opened this many stores at
one time in Canada. Nine more stores are planned for 2014.
While the ambitious launch gave Target a hefty market presence
immediately, it also created major logistics headaches.
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Expenses soared as Target over staffed stores and grappled with what
it described as supply-chain congestion. That left many stores with
barren shelves and complaining consumers, many of whom have been
spoiled by less-expensive choices offered in Target stores just
across the U.S. border.
For 2013, the company reported a loss of nearly $1 billion in Canada
on sales of $1.3 billion. Overall, the company reported a 34 percent
drop in net profit last year to $1.97 billion.
"Clearly, they just weren't prepared," said Maureen Atkinson, senior
partner at Toronto-based global retail consultancy J.C. Williams
Group.
Target Canada President Tony Fisher was unavailable for comment, but
a spokeswoman said the company is making progress.
The problems extend beyond its supply chain, retail experts say.
Target underestimated competition from both domestic retailers and
its biggest rival, Wal-Mart.
"I think they will get it right in the long run, but they've got a
lot of fixing to do," said Atkinson. "Unfortunately, for customers,
it's harder to forget than remember.
BREACH TROUBLES
Mulligan, the interim CEO, has served as the company's chief
spokesman on the data breach, holding up well under scrutiny during
Congressional hearings.
Target disclosed the cyber attack in December, revealing the theft
of at least 40 million payment card numbers and 70 million other
pieces of customer data.
"He has played a key role in the recovery efforts," said Target
spokeswoman Dustee Jenkins.
The impact of the breach is expected to have extended into the first
quarter of the year. Analysts on average expect the company to
report a decline of about 1 percent in first-quarter sales at
established stores when it releases results in two weeks, according
to Thomson Reuters I/B/E/S.
"The Canadian component of the story is salt in the wound, but it is
by no means the wound," said Jim Danahy director of the Centre for
Retail Leadership at York University in Toronto. "The wound for this
company is without question the security breach."
(Additional reporting by Phil Wahba in New York, Jim Finkle in
Boston and Solarina Ho in Toronto; Editing by Chizu Nomiyama, Nick
Zieminski and Ted Kerr)
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