Target Shares Higher Despite S&P Downgrade

On Friday, Standard & Poor's (S&P) Ratings Services today lowered its ratings on

from A+ to A. The short-term rating on Target remains A-1, with a stable outlook. The S&P reported that the downgrade reflects Target's lower than expected fourth quarter results due to the customer data breach and losses in the Canadian division. The company saw negative same store sales with quarterly profit slipping to $520 million, or $0.81 per share, versus $961 million, or $1.47 per share, in the year-ago period. Total revenue fell 5.3% and U.S. comparable sales dropped 2.5%. The rating agency commented on the decline in traffic and sales from the customer data breach, and the expectation for this to have a "lingering affect on customer traffic at least through the first half of fiscal 2014." Standard & Poor's noted Target's strong cash flow and predicts that performance in Canadian stores in fiscal 2014 will improve. The stable outlook reflects these gains and sees the costs related to the data breach as "manageable". The rating service wrote, "We expect the performance at its Canadian stores to improve in fiscal 2014 as Target ramps up the new stores and resolves its supply chain issues. As such, we expect operating losses to narrow because of improving sales and gross margin improvements from lower markdowns. We expect the segment to report EBITDA loss of about $250 million-$300 million through fiscal 2014." Shares of Target are trading higher on Monday despite the downgrade. Shares closed at $59.98 on Friday and are currently up 0.68% at $60.39.