Target Sales Rise - Analyst Blog

Target Corporation (TGT), the operator of general merchandise and food discount stores in the United States, recently posted better-than-expected sales results for the four-week period ended November 27, 2010, driven by robust traffic count during the month.

The company's comparable-store sales for November 2010 rose 5.5%, following an increase of 1.7% in October 2010 and reflecting a sharp improvement from a decline of 1.5% in November 2009.

The increase in comps was the result of growth in comparable store transactions with a modest rise in average transaction size.

By category – grocery, apparel, and healthcare and beauty reported healthy sales results. Hardlines sales also increased, reflecting robust performance across electronics and toys, but a sluggish performance in music, movies and books. Comparable-store sales of home decor remained soft.

Year-to-date, comparable-store sales climbed 2.4% compared with a fall of 3.6% in the same period last year. Based in Minneapolis, Minnesota, Target said that net retail sales for November rose 5.7% year-on-year to $6,012 million, whereas year-to-date, sales climbed 4.3% to $51,522 million.

Management now expects a low to mid single-digit increase in comparable-store sales for December. Target said that consumers are responding well to REDcard Rewards program that offers 5% discount on payment through Target Credit Card, Target Visa or Target Debit Card.

Target hinted that it remained well positioned to achieve its fourth-quarter 2010 sales and profitability goal. The company at its third quarter earnings announcement notified that it expects the fourth quarter comps to rise between 2% and 4%. 

The company also plans to introduce ‘P-fresh' in-store food and grocery sections in approximately 850 discount stores by the end of 2011. By the end of October, Target has ‘P-fresh' sections in 462 discount stores, with the remaining 400 stores targeted for addition within the period of October 2010 to 2011-end. The company expects ‘P-fresh' to boost 2011 comparable-store sales by 1% to 2%.

Target's strategic initiatives should help drive comparable-store sales and operating margins. We expect the company to gain market share in the upcoming holiday season, and believe that increased focus on consumable items will boost sales in a sluggish environment.

Target now tends to focus more on store renovations and enhance store sales productivity, introducing smaller format stores, and eyeing opportunities in the international markets. However, unfavorable consumer spending patterns and increased competition still remain concerns.

Target, which currently operates 1,752 stores in 49 states, faces stiff competition from Wal-Mart Stores Inc. (WMT). Currently, we have a Neutral rating on the stock. Moreover, Target holds a Zacks #3 Rank, which translates into a short-term ‘Hold' rating, correlating with our long-term recommendation.

 
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