Updated from March 10 Target ( TGT) may soon cut loose its struggling Marshall Field's and Mervyn's chains. The giant retailer announced late Wednesday that it is exploring "strategic alternatives," including a possible sale, for its two department store businesses. The company, which has hired Goldman Sachs as an adviser in the process, estimates it will make a decision and execute it within "several months." The news was roundly applauded on Thursday. Recently, Target shares were up $3.87, or 9.3%, to $45.60; analysts at Smith Barney, Credit Suisse First Boston, and SunTrust Robinson Humphrey upgraded the retailer. Marshall Field's and Mervyn's have seen their sales and operating profits slump in recent years. Those sales declines have come despite Target's efforts to increase sales and profits at the two divisions, company CEO Bob Ulrich noted in a statement. "As responsible stewards of the corporation's assets, we believe that it is appropriate at this time to identify and evaluate possible strategic alternatives," Ulrich said. Investors have been
grumbling for months about the performance of Mervyn's and Marshall Fields. The chains' declining sales and earnings have helped obscure the performance of Target's discount stores and hold down its stock, they say. Last year, sales fell 6.9% at Mervyn's and 4% and Marshall Field's. Meanwhile, operating profits dropped a whopping 32.6% at Mervyn's and 21.1% at Marshall Field's. In contrast, operating profits at Target's eponymous discount store chain jumped 12.3% last year on 12% sales growth. While sales at Marshall Field's have begun to rebound in recent months, a turnaround at the business will take "many years," Target CFO Doug Scovanner said on a conference call Wednesday. So too will a recovery at Mervyn's, he said. "We remain committed to creating shareholder value over time," Scovanner said. "The process of arriving at this decision was not easy or hasty."
Target shares gained 28% in 2003, which beat the S&P 500 Index. But the company's stock performance trailed its retail peers; the S&P Retail Index gained 42% last year. Target's shares are up 8.9% since the end of last year, outperforming both indexes. Amid broad weakness on Wednesday, the stock shed $1.12, or 2.6%, to $41.73. But the company's decision to explore alternatives for the two department store chains was not influenced by "short-term changes in share price," Scovanner said.