The Walmart wildcard in Target’s guidance game

Target is set to report February same-store sales this Thursday and offer the first data point of the new fiscal year in which same-store sales are forecast to increase in the range of 4% to 5%. For February, the company has forecast a low single-digit increase and last week in conjunction with the release of fourth-quarter results confirmed it was on track to meet the low single-digit number.

As for the full year and the projected 4% to 5% gain, Target expects much of the growth to be driven by the PFresh program and REDcard Rewards, but plenty of challenges and uncertainties loom. For starters, during the company’s fourth-quarter conference call CFO Doug Scovanner cautioned that the company’s expectations are taking place against a backdrop of “persistently weak overall market growth in the U.S. for the kinds of goods we sell.”

EVP merchandising Kathy Tesija also noted that customers are risk averse.

“They are concern about losing their jobs and focused on controlling household budgets, leading to increased coupon use and a focus on promotions,” Tesija said.

Familiar headwinds such as stubbornly high unemployment and a weak housing market remain a drag on consumer confidence and spending and then during the past month came an unexpected surge in gasoline price related to political turmoil in Egypt, Tunisia and Libya.

A potentially bigger unknown is also looming in the form of Walmart where that company’s efforts to right it own ship could have an impact on Target’s results. Walmart for the past six months has talked about rededicating itself to an every day low price value proposition on a broad assortment of goods but isn’t expecting an immediate impact on its top line with first quarter comps expect to be flat to down 2% following a 1.8% decline in the fourth quarter. As Scovanner noted, Target is operating in the same challenging macro environment as Walmart and defended the Target rival.

 “I think a lot of people are picking on my big brother,” Scovanner said. “I think (their fourth quarter decline) is much more a reflection of what’s happening in the macro economy to them and to some extent to us than having anything to do with their stumbles. That’s as far as I’ll go in analyzing their results. But for the record, I think that was a positive comment, not a negative one, in terms of the challenges that they face and how they are addressing them.”

No need to aggravate Walmart in addition to dealing with all of the other external economic and geopolitical forces conspiring to inhibit sales at Target.


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