Goyder denies Target is 'broken' after earnings slump
Oh, how times have changed. On Thursday, Target chief Stuart Machin - at the time of his appointment the third boss of the struggling retailer in 15 months - agreed with one analyst who described the business model as "broken", with a return to sales and pre-tax earnings momentum as much as three years away.
The recent full-year results for Target, which has launched a new marketing blitz using British fashionista Gok Wan, showed just how much pain the business is in, as fiscal 2013 earnings slumped 44.3 per cent to $136 million and sales went backwards by 2.1 per cent to $3.66 billion.
It was the only retail division within Wesfarmers to post negative earnings growth, with stablemate Kmart almost facing overheating cash registers as its pre-tax earnings jumped 28.4 per cent.
Mr Goyder on Thursday said his upbeat description of Target in 2007 was correct, with its headquarters in Geelong protecting it from the poor culture at Coles HQ in Melbourne. But the caravan had moved on.
"Now Target has got to change because the business it's in, which is on-trend fashion at affordable prices, that game has moved a fair bit in the last couple of years," Mr Goyder said. "If you think about Zara, Topshop, GAP and [the] online area, a lot is going on ... and the Target team will pull Target into making sure we are very competitive in that space and we are on-trend in fashion, and there is a bit of work to do."
He did not believe the business was "broken", with eight senior executive appointments to help revive the company's fortunes.
However, inventory problems that plagued Target earlier this year would spill into the new season, further exacerbating the retailer's dependency on clearance sales and pinching margins.
"We ... have too much winter inventory, we will have to clear that through - because of that we will get a delayed start into spring and summer and that will impact the first half of the year," he said. "But I'm already seeing signs in the business that ... quality things are happening and we will start seeing that later this year and in the following year, but it will take some time."
Frequently Asked Questions about this Article…
Target's FY2013 earnings slump was driven by falling sales and inventory issues. The retailer's pre-tax earnings fell 44.3% to $136 million while sales dropped 2.1% to $3.66 billion. The article cites excess winter inventory, a heavier reliance on clearance sales that pinched margins, and stronger competition in on‑trend fashion as key contributors.
In the recent full-year results, Target's pre-tax earnings fell 44.3% to $136 million and total sales declined 2.1% to $3.66 billion (fiscal 2013).
No. While an analyst and Target chief Stuart Machin acknowledged the business model faced serious challenges, Richard Goyder said he did not believe Target was 'broken'. Goyder acknowledged the market had moved on and said Target must change, but he pointed to steps being taken to make the business competitive again.
Stuart Machin agreed with at least one analyst who described the Target business model as 'broken' and warned a return to sales and pre‑tax earnings momentum could be as much as three years away. That view highlights the scale of the turnaround task facing management.
Target had excess winter inventory that it will need to clear, which increases reliance on discounting and clearance sales and squeezes margins. Management warned this will delay the start into spring and summer ranges and is likely to impact the first half of the coming year.
Wesfarmers has made a number of moves to revive Target, including a new marketing push featuring British stylist Gok Wan and eight senior executive appointments to strengthen leadership. Richard Goyder said the Target team will work to make the business more competitive and on‑trend in fashion.
Kmart performed strongly in the same reporting period: its pre‑tax earnings jumped 28.4%. Target was the only Wesfarmers retail division to post negative earnings growth, highlighting a contrast between the two chains.
Everyday investors should watch for improvements in inventory management (fewer clearance sales and better seasonal timing), the impact of the new executive appointments, results from the Gok Wan marketing push, and any early signs of sales momentum returning in spring/summer. Management said they were already seeing quality changes that should show up later this year and into the following year.
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