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Flutter Bug

Fit-and-flare skirt shapes are a key look for resort, especially in short variations. Here, Preen by Thornton Bregazzi’s printed wool skirt with Rachel Comey’s polyester, nylon and elastane top. Alexis Bittar earrings and cuffs.



Target Joins the Pack In Cutting Outlook By SHARON EDELSON ADD TARGET CORP. to the list of retailers now bearish about the rest of the year. The discounter on Wednesday revised downward its outlook for the third quarter and full year, joining the likes of Macy’s Inc., Wal-Mart Stores Inc., Nordstrom Inc. and Kohl’s Corp. The revision and weakness in the Canadian operations — as well as Target’s 13.2 percent decline in second-quarter net earnings — sent the retailer’s shares down sharply on Wall Street, where they fell 3.6 percent to $65.50. Target was one of a slew of retailers’ shares falling in Wednesday’s overall decline in the S&P 500 Retailing Industry Group of 0.8 percent, or 6.82 points, to 814.54. The index was particularly dragged down by American Eagle Outfitters Inc.’s 9.9 percent share price drop after it, too, lowered guidance for the third quarter. (For more on American Eagle, see page 2.) Target reported net earnings of $611 million for the second quarter, down from $1.1 billion the prior year, on a 2 percent rise in sales to $17.11 billion, compared with $16.77 billion in the previous year. Earnings per share were 95 cents. Target’s U.S. sales in the second quarter increased 2.4 percent to $16.8 billion from $16.5 billion last year, reflecting a 1.2 percent increase in comparablestore sales combined with the contribution from new stores. Target’s second-quarter adjusted earnings per share of $1.19 were at the top of the expected range, despite the softer-than-expected U.S. comparablestore sales increase of 1.2 percent. Net earnings for the first half declined 20.8 percent to $1.11 billion, from $1.4 billion in the 2012 first half. Sales were $33.82 billion, a 2.5 percent rise over the prior year’s first half of $32.98 billion. The retailer said it expects EPS of 55 to 65 cents in the third quarter, well below the consensus estimate of 88 cents. For full-year 2013, Target now projects EPS of $3.75 to $3.95, down from the previous guidance of $4.25 to $4.45 and the consensus estimate of $4.32, due to dilution related to the Canadian segment SEE PAGE 7

Vince Eyes Retail Growth By DAVID MOIN NEW YORK — With its impending initial public offering, Vince is in a quiet period. But executives aren’t shy about discussing their stepped-up retail program. The fashion firm today will open a sun-drenched, 3,050-square-foot flagship in SoHo here with soaring 22-foot-high ceilings and ample space to display the entire collection. The flagship, along with other retail plans, will no doubt be called out in the road show to underscore the brand’s accelerating brick-and-mortar strategy and evolving collection. While Vince’s owner, Kellwood Co., has not revealed a timetable for the IPO, it could happen as early as this year. Vince — known for modern, contemporary, easy, drapy styles, and what executives refer to as “everyday luxury essentials” — continues to add categories. In the past year, it has also been elevating its fashion. There’s colorblocking, “mixed media” styles such as sweaters with cashmere sleeves and silk bodies, and some edgier, higher-priced items — like $1,000 leather jackets and $2,400 fur jackets — to augment core offerings such as sweaters, priced $295 to $495, and T-shirts and tanks at $48 to $135, as well as legging and ponte pants. The flagship is designed to reflect the more sophisticated and innovative design direction under Doo-Ri Chung, who has been the creative director since January. “We have predominantly been a U.S. wholesaledriven women’s apparel business. Our goal is to evolve into a global multichannel dual-gender lifestyle SEE PAGE 3




Target Net Slips; Revises Guidance Down {Continued from page one}

of about 82 cents a share, due to the early retirement of debt of about 42 cents a share and net accounting gains of about 29 cents associated with the sale of Target’s entire consumer credit card receivables portfolio to TD Bank Group. Third-quarter comps of 1 to 2 percent were projected, with full-year comps revised to 1 percent from an earlier of 2 to 2.5 percent. “For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures,” said Gregg Steinhafel, chairman, president and chief executive officer. “Across the company, we’re moving quickly to position the business to succeed in this rapidly changing retail environment.” Canada, where Target opened 44 stores in the second quarter for a total of 68 units, generated sales of $275 million at a gross margin rate of 31.6 percent. Steinhafel conceded that sales and profit momentum in Canada have been slower to build than expected. Home and apparel performed above expectations, but sales of items that drive frequent shopping trips fell short. “We know there is a gap in guest awareness of how low our

Deborah Weinswig, a retail analyst at Citi, said “We’re concerned about discounting and soft traffic in Canada, where sales missed our estimate of $363 million.” P rofitability in Canada in 2014 is a stretch. “We have to get another 56 stores open and get through the holiday,” Steinhafel said. “We’ll start to grow sales, but it’s unlikely we’ll see profitability for the full year.” Chief financial ofKathryn ficer John Mulligan Tesija said misjudging the market was a factor in incremental dilution. “We [had] a set of sales expectations and given all the excitement we saw building over two years [prior to the launch] sales have been disappointing. There’s some excess inventory and the need to right-size the entire expense structure.” Canadian segment earnings before interest and taxes for the second quarter was a $169 million loss, as Gregg gross margin of $87 milSteinhafel lion was offset by $207 million of start-up and operating expenses and $49 million of depreciation and amortization. Canadian operations reduced Target’s GAAP earnings losses per share to 21 cents in second quarter, compared to an earlier estimate of a 16-cent loss.


For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures. — GREGG STEINHAFEL, TARGET CORP.

prices really are,” Steinhafel said. “We’re deploying multiple tactics. Our efforts will drive greater awareness of frequently purchased items.” The trajectory of sales in Canada matches the retailer’s U.S. launches, beginning with slower momentum and growing to “our fifth-year sales goal,” Steinhafel said. “We invested in this segment to position it for long-term success.”

Difficult Headway in Canada TARGET’S WELL-KNOWN reputation for style and design might be getting the best of it in Canada. Rather than drawing customers into stores, shoppers may perceive prices to be higher. “We know there is a gap in guest awareness of how low our prices really are,” said Gregg Steinhafel, chairman, president and chief executive officer. “We’re deploying multiple tactics. Our efforts will drive greater awareness.” Chains such as Wal-Mart, Best Buy, Canadian Tire and Loblaws No Frills and Real Canadian Superstore offer price-matching guarantees against competitors, while Drug Mart and Loblaws full-line stores don’t. Target’s prices in Canada were higher than Wal-Mart’s, according to a price study by Kurt Salmon & Associates, which said pricing is a sensitive issue for Canadian consumers. KSA said some shoppers were surprised that Target’s new stores weren’t on par with the retailer’s pricing in the U.S. “There’s certainly an interest in fashion and an awareness of fashion in Canada,” said Wendy Liebmann, ceo of WSL Strategic Retail, which recently completed a study, “How Canada Shops.” “The Bay and midtier department stores have upped their offer in anticipation of Target’s arrival. While Canada doesn’t have as many [retail] options as we do in the U.S., they have some good food options, like Loblaw. There may not be as many stores or retailers, but there’s Costco and Wal-Mart.” No one expects Wal-Mart to take tive vice president, merchandising and supply chain. “This year’s payroll tax increase is also crowding out spending. We’re building flexibility in our inventory plans and creating merchandise and marketing with compelling offers.” Target wants to be a one-stop shop for back-to-school, fashion, school supplies and accessories priced under $20 and over 400 items for $1 or less. Target completed the beta launch of Cartwheel, the mobile coupon platform on Facebook. “We’re investing in speed, search, product checkout and way finding,” Tesija said. “We continue to invest to integrate the shopping experience across channels.” Buy online and pick up in-store, a capability competitor Wal-Mart offers, will be available in Minneapolis in the third quarter, with a complete rollout to all stores by the holiday season. Target is working to deliver online orders from stores as early as the same day. A test of beauty concierges in Chicago has been rolled out to 200 stores. The re-


Back in the U.S., Target wants to “further shrink the size of this store format,” Steinhafel said. The reduced prototype allow the retailer to enter a variety of real estate situations, including possibly opening stores on campuses. “Consumer confidence statistics improved this year, but optimism among lower-income households is lagging behind,” said Kathryn Tesija, execu-

Credit Sources on Lookout for Liquidity Issues at Sears By VICKI M. YOUNG WITH MANY retailers cutting forecasts for the second half, credit professionals now expect Sears Holdings Corp. to reveal a sale of some kind to alleviate liquidity concerns when the retailer posts second-quarter results today. The company possibly could sell the service-protection business connected with home appliances, or there could be more real estate asset sales, credit sources said. That’s in part because chief financial officer Rob Schriesheim said at the end of the fourth quarter that “we expect to generate at least $500 million of additional liquidity through monetization of assets over the next 12 months.” He em-

phasized that Sears Holdings is an “assetrich enterprise with substantial liquidity, unencumbered real estate and well-established stand-alone businesses, including Lands’ End and Sears Canada.” According to one credit analyst, “There’s a very good chance of [an asset sale] happening. Many retailers are reporting lackluster earnings because consumer spending has slowed in the quarter. If really strong retailers such as Macy’s have not comped well, it’s hard to believe that Sears has outperformed anyone.” He added that Sears Holdings had a big cash burn rate in the first quarter, due to Sears’ business, even though it likely picked up some apparel sales from J.C. Penney. Another credit analyst said Kmart has been hurt by lower discretionary income

among its customer base when the payroll tax increase went into effect in the first quarter. One asset many believe should be sold is Lands’ End, which former chief executive officer Alan Lacy acquired in 2002 for $1.86 billion, before the merger of Sears and Kmart and when Sears was then Sears, Roebuck & Co. Financial sources said Sears had pitched Lands’ End to private equity firms in 2012. These individuals also said that a few strategic buyers kicked the tires, and there were even offers for the business in the $1 billion range, far lower than the asking price of $2 billion. Sears Holdings doesn’t break out the financial performance for Lands’ End, although its chairman and ceo Edward

the competition lying down. WalMart said it will spend 450 million Canadian dollars ($430 million at current exchange) on growing its operations in Canada, a year after spending nearly $750 million to open 46 stores. The retailer, which offers fresh food in about half of its locations, plans to make fresh food available in all stores. Target has been aggressive in this area with PFresh in the U.S. In Canada, the merchandising is similar. Liebmann said foreign retailers often underestimate the Canadian market. “The complexity of Canada is going to be more challenging than originally anticipated,” she said. “There’s a cultural thing that just makes it different.” The Canadian retail scene will get more competitive. Safeway last week pulled out of Canada, selling its 223 stores to Sobeys, which will be a formidable competitor, experts said. Ann Taylor, J. Crew, Victoria’s Secret and Chico’s are looking to enter Canada, and Nordstrom is launching there in 2014. One retail executive who’s not eager to open stores in Canada is Terry J. Lundgren. The chairman, president and ceo of Macy’s said in June, “We’ve looked at Canada longer than anybody. We’ve been looking for 15 years and many opportunities came that we passed up. There’s certainly growth happening in the market. There’s going to be an onslaught of retailers fighting it out for market share. My point of view is, I think it’s done. There’s going to be a big battle going on there for next 10 to 12 years.” tailer this month acquired DermStore, which will provide access to a broad assortment of prestige brands. “We’ll continue to monitor and identify opportunities to augment [e-commerce] through acquisitions,” Tesija said. While some Wall Street analysts have been unimpressed by Target’s apparel of late, Phillip Lim’s limited time collection for Target will bow on Sept. 15 with men’s and women’s apparel, accessories and shoes, priced $20 to $300. Matt Nemer, a retail analyst at Wells Fargo, said, “We think an overall lack of fashion in the apparel category could result in softer comps, although this could be partially offset by strength in home and specifically Target’s Threshold product line.” In the second quarter, Target paid dividends of $231 million. The board approved a 19 percent increase to the quarterly dividend, the 42nd consecutive year that Target has increased its dividend, Steinhafel said.

Lampert has told WWD that the operation is a $3 billion business. An executive who makes recommendations on credit risk for his apparel firm said, “I think Sears has to make changes to Lands’ End. It’s a good model, but it needs to be spun off if they don’t find a buyer. Lands’ End is like a Lexus in a Toyota showroom: The business has value.” This executive added that the operation has been hurt over the years as Lampert, in cutting back on capital spending, hasn’t reinvested into the business. In September 2012, Sears restructured the operation such as its warehousing and call center, citing the growth in online shopping as the reason. Those moves resulted in the layoff of nearly 200 staffers. Like Lands’ End, the profitable service-protection business has been shopped to potential buyers.

Target joins the pack in cutting outlook (WWD Issue 08/22/13)  

Target’s well-known reputation for style anddesign might be getting the best of it in Canada. Rather than drawing customers into stores, sho...

Target joins the pack in cutting outlook (WWD Issue 08/22/13)  

Target’s well-known reputation for style anddesign might be getting the best of it in Canada. Rather than drawing customers into stores, sho...