Target cuts annual profit outlook

NEW YORK — Target slashed its annual profit outlook as the retailer continues to reel from a massive data breach, a disappointing expansion in Canada and sluggish sales in the U.S.

The nation's third-largest retailer also said Wednesday that its second-quarter earnings dropped 61.7 percent.

Shares of Target fell more than 2 percent in premarket trading.

The Minneapolis-based company said it earned $234 million, or 37 cents per share, in the quarter ended Aug. 2, compared with earnings of $611 million, or 95 cents per share, a year earlier.

Revenue rose 1.7 percent to $17.4 billion, slightly above the $17.38 billion estimate from FactSet. Revenue at stores open at least a year was unchanged from a year ago.

Excluding expenses related to the data breach, the company earned 78 cents per share, which was in line with Target's reduced estimate issued earlier in the month

Analysts expected 79 cents per share, according to FactSet.

Still, there were encouraging signs in the report. Target said that customer traffic is recovering and monthly sales are improving, with revenue at stores opened at least a year up more than 1 percent in July. That figure is considered a key measurement of a retailer's operating performance.

The results come three weeks after Target named PepsiCo executive Brian Cornell as its new CEO as the retailer fights to redefine itself to American shoppers.

Cornell, who started his job Aug. 12, marks the first outsider to take the helm at Target. He replaces Chief Financial Officer John Mulligan, who was named interim CEO when Gregg Steinhafel resigned in early May in the wake of the data breach that compromised the credit card and personal information of millions of customers and exposed big security flaws.

But Steinhafel was dealing with other challenges, including a botched expansion in Canada and criticism that Target had lost its magic as a purveyor of trendy affordable fashions and home decor.

The latest results highlight the challenges that Cornell faces. He must wrestle not only with specific problems at Target but also with broader challenges that are facing the economy and the retail industry in general.

Retailers, particularly those who cater to low-income shoppers, are still navigating a slowly recovering economy that hasn't yet benefited all Americans equally. Stores also face a shifting landscape where mobile shoppers want more flexibility in where and how they buy.

But Target's problems run deeper. For one, analysts say that Target needs to play catch-up to cater to mobile savvy shoppers by offering more services that fuse its online experience with its physical stores. It's now testing $10 rush delivery in the Minneapolis, Boston and Miami markets, offering customers the ability to order as late as 1:30 p.m. and receive a delivery of qualifying items between 6 p.m. and 9 p.m. the same day.

Moreover, Target, which created a niche for collaborating with designers for affordable merchandise, also needs to reclaim its status as a purveyor of cheap chic at a time when other stores are copying its formula. At the same time, it still hasn't been able to ditch the perception that its prices on staples are much higher than other discounters like Wal-Mart.

Target also faces the lingering effects of the breach. The company has responded to the breach by overhauling security and technology. The company has been accelerating its $100 million plan to roll out chip-based credit card technology, which is considered secure, in all of its nearly 1,800 stores.

The company said Wednesday that it incurred gross breach-related expenses of $148 million, partially offset by the recognition of a $38 million insurance receivable in the quarter.

As for Canada, the company is working to revamp its business under its new CEO of Canadian operations Mark Schindele, who replaced Tony Fisher in May. Last week, it outlined key initiatives such as a price-matching program and announced a merchandising partnership with celebrity designer Sarah Richardson.

The company said that gross profit margin in its Canadian operations fell to 18.4 percent from 31.6 percent a year earlier as the company has had to slash prices to get rid of merchandise.

The company said it now expects full-year adjusted earnings to be in the range of $3.10 to $3.30 per share, compared with prior guidance of $3.60 to $3.90. Analysts had expected $3.50 per share.

Target's shares fell $1.35 to $57.90 in premarket trading Wednesday.

The shares, excluding Wednesday's performance, have been down 6.3 percent since the beginning of the year and have lost nearly 13 percent of their value over the past 12 months.

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McDonald’s to sell packaged McCafe coffee in grocery stores

Move over, Starbucks. McDonald's is putting its packaged McCafe coffee in grocery stores next year.

With the help of Kraft Foods, the hamburger giant will roll out bags of ground and whole-bean coffee, as well as single-cup pods, to compete with fast-food chains including Dunkin Donuts and Starbucks that sell packaged coffee at retail locations.

Hoping to tap into the $11-billion-plus U.S. retail coffee market, McDonald's and Kraft started testing the bagged coffee at a few supermarkets earlier this year.

"We understand there is huge demand for at-home options, and we've built great success with our McCafe coffee in restaurants," said Greg Watson, senior vice president, McDonald's U.S. Menu Innovation.

McDonald's, based in Oak Brook, Ill., has been amping up its coffee offerings since introducing its McCafe brand in 2009. The fast-food chain introduced popular specialty drinks such as Pumpkin Spice Lattes, Frappes and Caramel Mochas.

McDonald's said last year that its coffee sales had risen 70 percent since the McCafe launch.

Packaged in 12-ounce bags, McCafe will be offered ground in premium roast, breakfast blend, French roast, Colombian, premium roast decaf and French vanilla and hazelnut plus a French roast whole bean. The chain did not disclose pricing.

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©2014 Los Angeles Times. Distributed by MCT Information Services

Visit the Los Angeles Times at www.latimes.com

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Massachusetts cutlery maker files for bankruptcy

BUCKLAND, Mass. — The nation's oldest cutlery manufacturer has filed for bankruptcy after 177 years of making knives and other kitchen tools.

The Recorder of Greenfield (http://bit.ly/1n9sVuo ) reports that Lamson & Goodnow Manufacturing Co. of Shelburne Falls, Massachusetts, filed for Chapter 11 bankruptcy earlier this month, which protects the company from creditors as it reorganizes.

The business has also put its 18-acre factory complex up for sale.

According to federal bankruptcy court in Springfield, the company filed for bankruptcy protection as a result of two multimillion dollar loans it could not repay. The company owes $1 million on a U.S. Small Business Administration loan and more than $2 million to the small business corporation in New York.

Founded in 1837, the company has been owned by James Ross Anderson since 1998.

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Information from: The (Greenfield, Mass.) Recorder, http://www.recorder.com

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Tesla answers critics with new 8-year warranty

Tesla Motors Inc., perhaps responding to less than stellar reviews of its Model S electric car, is offering a new eight-year, unlimited-mileage warranty for its drive unit and battery pack.

The generous warranty will cover all Model S cars already on the road, and will extend to new owners when the cars change hands.

It extends the previous warranty, which was for four years or 50,000 miles.

The company may have issued the warranty announcement in response to mixed long-term-use reviews from the online car website Edmunds.com and by Consumer Reports. Both publications drove the Model S for extended periods — Edmunds for 18 months, Consumer Reports for 15,000 miles — and both experienced multiple difficulties with the car, including roadside breakdowns.

Tesla chief executive and co-founder Elon Musk, making the announcement on the company's website, said the new warranty would extend retroactively to "all Model S vehicles ever produced," and admitted that the company should have offered a better warranty from the start.

"If we truly believe that electric motors are fundamentally more reliable than gasoline engines, with far fewer moving parts and no oily residue or combustion byproducts to gum up the works, then our warranty policy should reflect that," Musk wrote.

He also told Tesla investors that the new policy would have "a moderately negative effect on Tesla earnings in the short term, as our warranty reserves will necessarily have to increase above current levels."

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©2014 Los Angeles Times. Distributed by MCT Information Services

Visit the Los Angeles Times at www.latimes.com

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Argentina seeks to end default through bond change

BUENOS AIRES, Argentina — Argentina's government plans to change the way it pays holders of the country's debt as a way to end the default triggered by a legal battle with U.S. investors.

President Cristina Fernandez says she will send a bill to Congress that would set up a system to pay bondholders in Argentina instead of channeling them through the Bank of New York.

The change is intended as a way around a U.S. court order that blocked Argentina from making $539 million in interest payments on July 30, triggering the country's second default in 13 years. It would affect creditors who accepted lower-value bonds following the country's 2001 default and could further complicate the battle with holdout creditors.

Fernandez proposed the change late Tuesday and it's expected to pass in Congress.

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Recaro recalls over 39,000 child safety seats

DETROIT — Recaro is recalling more than 39,000 child safety seats because they can let a child's head move too far in a crash.

The recall covers ProSport model 385 seats made from June 16, 2010, to Jan. 31, 2013. The problem happens when the seats are installed with the lower latch anchors and without the top tether.

Recaro will notify owners and provide set of new instructions telling owners not to use the lower latch system with a child weighing 40 or more pounds. The company also will send a new instruction label for the seat.

The problem was discovered in testing by Recaro. The company says in documents sent to U.S. safety regulators that it cannot determine if the problem caused any injuries.

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Golf partners charged with insider trading

BOSTON — Federal securities regulators have charged a former Eastern Bank executive with insider trading for allegedly telling a golfing partner about an impending acquisition.

The Securities and Exchange Commission on Monday charged John Patrick O'Neill, a former executive at Eastern Bank, with telling his friend and golfing buddy Robert Bray, about Eastern's planned acquisition of Wainwright Bank & Trust Co. in 2010. The men were members of the same Watertown country club.

Authorities say Bray bought 31,000 shares of Wainwright, and then sold them once the acquisition became public for twice the price, making a profit of nearly $300,000.

O'Neill also faces separate criminal charges. He was arrested Monday and released on $200,000 bond.

Lawyers for the men did not return messages.

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Consumer prices edge up 0.1 percent in July

WASHINGTON — U.S. consumer prices rose in July at the slowest pace in five months, held back by a drop in gasoline prices.

Consumer prices edged up a seasonally adjusted 0.1 percent last month, after larger gains of 0.3 percent in June and 0.4 percent in May, the Labor Department reported Tuesday. It was the smallest increase since a similar 0.1 percent rise in February.

The July price restraint came from falling gasoline prices, which had surged in June. All energy prices were down 0.3 percent and this helped offset a 0.4 percent rise in food costs, which have been pushed up by adverse weather including a drought in California.

Over the past 12 months, consumer inflation is up 2 percent while inflation excluding food and energy is up 1.9 percent. Price gains around 2 percent are considered moderate and meet the 2 percent inflation target set by the Federal Reserve.

Analysts believe overall prices will moderate further in coming months, helped by moderation in energy costs. AAA reports that the nationwide average for a gallon of regular gasoline dipped to $3.45 on Monday, down 13 cents in the past month.

Gas prices are also lower than a year ago, when a gallon of regular cost $3.54. That fall in gasoline prices is one reason for the optimism of economists that consumer spending will show solid gains in coming months. A drop in gasoline prices means consumers will have more to spend on other items.

For July, the 0.4 percent rise in food costs was the fifth increase of that size or higher in the last six months. Food prices have been pushed higher by adverse weather conditions including a severe drought in California.

The drop in energy costs also helped to push down airline ticket prices, which fell 5.9 percent in July after rising 10.9 percent over the previous five months. The price of used cars was down 0.3 percent last month, the third consecutive drop. New car prices rose 0.3 percent after having fallen in June.

The Labor Department reported last week that its producer price index rose just 0.1 percent in July following a 0.4 percent gain in June. This index measures the cost of goods and services before they reach consumers.

The Federal Reserve strives to achieve a 2 percent target for inflation. Until recently, price increases by its favorite inflation gauge were rising around 1 percent, well below the Fed's target. While this inflation gauge showed a 12-month gain of 1.6 percent in June, that remains comfortably below the Fed's target and is giving the central bank the leeway to keep interest rates at record lows to boost the economy.

Fed Chair Janet Yellen has continued to stress that while there have been improvements in the unemployment rate, many indicators of the labor market remain weak. She has cited still-high levels of people out of work six months or longer, large numbers of people being forced to work part-time who would like full-time work and persistent weak wage growth.

Yellen will deliver the keynote address at an annual conference sponsored by the Kansas City Federal Reserve Bank in Jackson Hole, Wyoming, on Friday.

Financial markets will watch those comments closely for any hints that Yellen is considering moving up the timing for the Fed's first rate hike since the recession. Many economists still believe that the Fed will not start boosting its key short-term interest rate, which has been at a record low near zero since late 2008, until the middle of next year.

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US home construction jumps 15.7 percent in July

WASHINGTON — U.S. home construction rebounded in July, rising to the fastest pace in eight months and offering hope that housing has regained momentum after two months of declines.

Construction increased 15.7 percent in July to a seasonally adjusted annual rate of 1.09 million homes, the Commerce Department reported Tuesday. That was the fastest pace since November and followed declines of 4 percent in June and 7.4 percent in May.

Applications for building permits, considered a good sign of future activity, also showed strength in July, advancing 8.1 percent to an annual rate of 1.05 million, after declines of 3.1 percent in June and 5.1 percent in May.

The July rebound reflected strength in single-family home construction, which rose 8.3 percent, and in apartment construction, which was up 33 percent.

The strength in July was led by a 44 percent rise in construction starts in the Northeast. Housing construction was up 29 percent in the South, recovering from a 26.8 percent plunge the month before blamed in part on heavy rains in that part of the country.

A report Monday indicated homebuilders are feeling more confident about their sales prospects, a hopeful sign that home construction and sales of newly built homes could pick up after stalling in recent months.

The National Association of Home Builders/Wells Fargo builder sentiment index rose in August to 55, up two points from a revised 53 for July. That is the third straight monthly increase and put the index at its highest reading since January, when it was 56. Readings above 50 indicate more builders view sales conditions as good rather than poor.

Builders' views of current sales conditions for single-family homes, their outlook for sales over the next six months and traffic by prospective buyers all increased in August, brightening the outlook.

Sales of new homes are running behind last year's pace. They fell 8.1 percent in June to a seasonally adjusted annual rate of 406,000.

A mix of rising home prices, higher mortgage rates and weak wage growth have made it more difficult for potential buyers to buy a newly built home. These factors have particularly depressed demand by first-time buyers.

But economists are still looking for a rebound, given the fact that the U.S. economy has been adding jobs at a healthy clip with gains topping 200,000 jobs for six straight months through July.

Housing, while still a long way from the boom of the last decade, has been recovering over the past two years. Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the Home Builders.

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Fox Sports taps YouTube Space LA for social-focused @TheBuzzer web show

Fox Sports, looking to deepen its reach with younger audiences on social platforms, has partnered with YouTube Space LA to produce a daily web-video series explicitly focused on fast-breaking stories that will be shared online.

The videos, each about one minute long, are posted to Fox Sports' YouTube channel as well as FoxSports.com. The goal is to produce four to 10 videos per day, centered on quick, snarky commentary to harness social buzz immediately as it hits the sports world.

"Until now, we haven't had a video-based program designed to be quick and active on social media to promote stories," said Pete Vlastelica, EVP of digital for Fox Sports.

The @TheBuzzer series, produced from the YouTube Space LA facility in Playa Vista, Calif., soft-launched earlier this summer. Last week, leading up to the official launch in time for the NFL's 2014-15 season, Fox Sports installed a full-time host for the show: Nicole Dabeau, previously a correspondent for "Entertainment Tonight" and "The Insider," who is repped by Creative Management Entertainment Group.

Currently, @TheBuzzer videos collectively average about 500,000 views per week -- relatively modest, by YouTube standards. But according to Fox Sports, more than 40% of the traffic for the series comes from social-media platforms such as Facebook, Twitter, Tumblr and Google+.

Two examples of recent @TheBuzzer clips: "Byron Scott: No Laker Can Beat Me In Horse" and "13-Year-Old Pitcher Mo'Ne Davis Wins Weekend."

"The program is designed to anticipate what will trend socially," said Vlastelica, adding that Fox Sports' 50-member online and social editorial team is on the lookout for trends and stories to produce for @TheBuzzer. "That's a skill in and of itself, understanding what gets shared on Twitter and Facebook," he said.

Over all, the idea is to more closely align the programming on Fox Sports 1 -- 21st Century Fox's 24-hour cable channel launched a year ago -- with the programmer's digital properties, according to Vlastelica. ""We're not a TV company," he said. "We're a media company designed to reach viewers wherever they are."

Fox Sports has previously dabbled in digital-native video content with Digital VideoFest, a contest in which a dozen YouTube creators vied for a development deal with the programmer. The winner was AVByte, a YouTube channel run by brothers Vijay and Antonius Nazareth, for their "This Week in Sports" recap show set to music.

Fox Sports' @TheBuzzer series is sponsored by Ford Motor Co., which also backed the series with AVByte.

Even with revenue behind it, the program will continue to be a digital sandbox of sorts. With @TheBuzzer, Fox Sports has been able to discover in a "fast-fail model" what works for digital-video publishing -- and what doesn't, said Liam Collins, head of YouTube Space LA.

"If you are in an environment where there is not a big cost to experimenting, that's a good thing," Collins said. "If you're Fox Sports and want to build even more audience, that audience is going to tell you what they want to see."

(C) 2014 Variety Media, LLC, a subsidiary of Penske Business Media; Distributed by Tribune Content Agency, LLC

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