* Gregg Steinhafel to also step down as chairman
* CFO John Mulligan to fill in as interim CEO
* Steinhafel also oversaw troubled expansion into Canada
* Shares fall as much as 3 pct
By Susan Taylor, Siddharth Cavale and Jim Finkle
May 5 Target Corp's decision to oust
Gregg Steinhafel as chairman and chief executive some five
months after a massive data breach has triggered concerns the
No. 3 U.S. retailer might have even more bad news for investors.
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.
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.
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
"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.
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
(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)