A mark-down of a different type

Shares of Target are on sale. After beginning the year slightly above the $60 mark, it has been a steady slide downward for the first five months of this year, and now shares regularly trade below $50.

The decline follows what had been a nice run up during the back half of 2010 as shares rose from around $49 at the beginning of last July to end the year at roughly $60. The first five months of 2011 have not been so kind, and Target’s stock gave back all of those gains. One explanation for the backslide is that sales and profits have not materialized as quickly as investors had hoped for as a result of such key initiatives as the REDcard Rewards 5% program and the rollout of the PFresh format to discount stores. While senior executives have asserted both programs are on track and meeting established performance metrics, simply meeting stated objectives usually isn’t enough to move a stock price higher. 

Analysts want to see outperformance such as same-store sales that surpass estimates rather than simply fall at the midpoint of a range of possible outcomes. So while Target’s key strategies are working, they are not gaining traction as rapidly as analysts and investors anticipated during the back half of last year while they were biding up shares of Target. 

The company’s performance has also been hindered by the pace of economic recovery which is occurring more slowly than some of the more optimistic forecasters presumed last year while this Spring’s high gas prices have shoppers thinking twice before putting discretionary purchases in their shopping carts.

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