NEW YORK, N.Y. – Standard & Poor’s Ratings Services lowered its rating on Target Corp. following weaker-than-expected fourth-quarter results that were dragged down by a massive data breach and a disappointing foray into Canada.
The rating agency said Friday that it lowered its ratings one notch down to “A” from “A+.” The rating is still four grades above speculative or junk status. S&P says the outlook is still “Stable,” implying further changes are not imminent.
“The downgrade reflects our expectations for limited recovery of credit metrics given continued operating losses at the Canadian division as well as potential costs related to the data breach,” said S&P’s credit analyst Ana Lai.
The move comes more than a month after the nation’s second-largest discounter reported its fourth-quarter profit fell 46 per cent on a revenue decline of 5.3 per cent as the breach scared off customers worried about the safety of their personal data.
Target expects business to be muted for some time: It issued a profit outlook for the current quarter and full year that missed Wall Street estimates because it faces hefty costs related to the breach.
S&P noted that it expected that the breach will have a “somewhat lingering effect on customer traffic at least through the first half of fiscal 2014, but this should moderate over time.” It said that while the costs related to the breach are difficult to forecast, it believes these expenses could be “significant but manageable given Target’s good cash flow generation.”
The ratings agency expects that Target’s performance at its Canadian stores should improve this year as the retailer ramps up the new stores and resolves its out-of-stock issues. Last year, Target made its first foray outside the U.S. in Canada with 124 stores, but sales were below expectations and it reported a hefty loss for the division in the first year.
Target’s shares were unchanged at $59.98 in after-hours trading Friday after rising 24 cents in regular trading. The stock is down about 12 per cent in the past 12 months.