MINNEAPOLIS - Despite an easy prior-year comparison, Target fell short of its December same-store sales guidance with a disappointing 0.9% gain. The company had forecast December comps in the low to mid single-digit range after it released November results, which saw comps advance 5.5%. Analysts were expecting the company to report a 4% December gain.
“December sales were below expectations, as strength in grocery and apparel was offset by softness in electronics, toys and some home categories. Sales in some key gift-giving categories moved earlier into the holiday season, and lower margin items drove a higher portion of sales than expected,” said Gregg Steinhafel, Target chairman, president and CEO. “Our 5% REDcard Rewards program is delivering the results we expected and we’re confident that we will continue to generate profitable growth, even while consumer buying patterns exhibit volatility across categories and over time.”
The rewards program was launched in October and offers those enrolled a 5% break on purchases. Also influencing the small gain was growth in average transaction size combined with a small increase in comparable-store transactions.
Despite the sales weakness, Steinhafel confirmed the company’s fourth quarter same-store sales forecast in the range of 2% to 4%, said January comps would be in the low to mid single digits and affirmed the fourth quarter profit forecast. In a statement, the company said the current median First Call estimate of $1.40 for Target’s fourth quarter earnings per share is a reasonable estimate within a range of possible outcomes, as favorability in the corporation’s credit card segment performance and income tax rate are expected to offset a slight decline in its retail segment EBITDA margin rate.
Trends in Target’s credit business continue to improve and delinquency rates in the portfolio are now at their lowest level in several years. Accounts 60 days past due in December represented 4.2% of the receivables portfolio compared to 4.6% in November and hit their lowest level since April 2008. The same was true of the 90 day delinquency rate where accounts 90 days past due in December accounted for 3.1% of the portfolio compared to 3.3% in November and hit their lowest level since July 2008.
As for merchandise sales, Target continues to report strong growth of its consumables business as it was busy throughout 2010 expanding those categories and adding fresh products as part of a massive remodeling program called PFresh. As a result, December same-store sales were strongest in grocery where a low double-digit increase was followed by a mid single-digit gain in health care and beauty. Comparable-store sales in apparel increased in the low to mid single-digit range, with the strongest performance in shoes and men’s apparel, and the softest performance in the newborn, infant and toddler areas. Despite a considerable promotional emphasis, comparable-store sales in hardlines decreased in the mid single-digit range in categories such as electronics, toys, sporting goods and entertainment. Comps also declined in the home business in the low single-digit range.