Undaunted by the reality that two months into the fourth quarter same-store sales have failed to materialize at the pace originally envisioned, Target is sticking with guidance that calls for a low- to mid- single-digit increase in January.
Perhaps the company is counting on gift card redemptions to buoy sales or has high hopes for the Bullseye Bodega limited duration, pantry loading merchandising initiative promoted in this week’s circular. Either way, Target needs to hit, or better yet, exceed, its sales objectives this month or investors who have begun to question the viability of such strategies as PFresh and REDcards Rewards are going to get very nervous about Target’s longer term prospects and have issues with management’s credibility.
That’s what happens when a retailer overpromises and underdelivers as was the case with Target in December and to a lesser extent November. Same-store sales in December increased 1.6%, which was below expectations. To make matters worse, it was below the 1.8% increase recorded in November, which chairman, president and CEO Gregg Steinhafel said the company would exceed when December guidance was provided in the range of low- to mid-single digits. With sales below plan profits aren’t where they were supposed to be either so earning per share estimates had to be reduced to a range of $1.35 to $1.43 from $1.43 to $1.53.
“December sales were below our expectations as growth in grocery and beauty offset softness in electronics and music, movies and books,” Steinhafel said. “Sales and traffic were strongest in the week leading up to Christmas as guests waited to shop for last-minute gifts. In 2012, we’ll continue to pursue initiatives designed to deliver compelling value and a superior shopping experience against the backdrop of continued slow and volatile economic growth.”
What makes Target’s December results especially disappointing was the fact that the company was up against a relatively easy prior year comparison when comps increased just 0.9%. The 1.8% gain in November, also regarded as disappointing at the time, was at least a little more understandable as it came a against a prior year gain of 5.5%. As for the view that January comps will be in the low- to mid-single digits, the company is up against a prior year comparison, which saw a 1.7% increase.
If there was a bright spot amid the company’s December showing it was the fact that the majority of the growth the company experienced was driven by an increase in average transaction size, which suggests loyalty among core customers, which is an objective of REDcard Rewards.
Additionally, the company noted that December comps in food increased in the low teens, while comps in household essentials increased in the mid, single-digit range, with the strongest performance in beauty. Comps in apparel and accessories increased in the low, single-digit range, with the strongest performance in kids’ apparel and the intimate, hosiery and performance categories. The softest performance was in jewelry and accessories and shoes. Comps in hardlines decreased in the low, single-digit range, with the strongest performance in toys and the softest performance in electronics and music, movies and books. Comparable-store sales in home furnishings and decor decreased in the low, single-digit range, with the strongest performance in seasonal categories and the softest performance in decorative home.
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Sadly the results are attributable to the disintegration of Target's overall strategy in recent years. Senior Buyers are now process managers and not merchants. Buying decisions are out of their hands and are done at a slow and exhaustive pace by a bureaucracy that frankly I do not know how they afford it. The company is no longer merchant driven. It reminds me of the downfall of Sears for much the same reasons. Target assortments are thin on trend content and are a far cry form the glory days of 1995 to 2000 when the Home Division rivaled anything in America and drove the business. The people responsible are all now gone. How sad for Target. Unless the company goes back to the philosophy of those times I am afraid it has seen its best days.
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Sadly the results are
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