Target remains confident in the face of sales and expense pressures

Target CFO Doug Scovanner moderated analysts’ second-quarter and full-year earnings expectations slightly, although it can at times be difficult to tell given the language used to communicate in the Wall Street guidance game.

For example, Scovanner noted that analysts’ consensus estimate for second-quarter earnings per share of $1 seemed potentially achievable, but was above the midpoint of a range of likely outcomes. He also applied similar language to analysts’ full-year earnings per share estimate of $4.23, noting that it too seemed above the midpoint of a reasonable range.

As for comps, Scovanner painted a picture of accelerating trends, noting the second quarter should be stronger than the 2% figure experienced in the first quarter and that by the fall the company ought to be generating same-store sales growth of 4% to 5%.

If expectations of same-store sale improvement unfold as Scovanner envisions, it will be against a backdrop of what seems to be a state of perpetual uncertainty in the U.S. economy that Target has managed to offset somewhat with the aggressive PFresh rollout and increased utilization of the 5% rewards programs.

“Outside of sale and traffic driven by these initiatives, guest were cautious in their behavior as they face continued economic headwinds, including new record high prices at the gas pump,” said Target chairman, president and CEO Gregg Steinhafel. “As a result, food and commodity categories performed well while we experienced less consistent patterns, including some sales declines in the rest of the store.”

Steinhafel predicted further uncertainty and echoed what has become a common refrain among retailers.

“While the U.S. economy is showing some signs of improvement, we expect the recovery will continue to be slow and uneven, particularly for more moderate income households. We believe these households need to see further improvement in housing and income growth before they’ll have the capacity to meaningfully increase their discretionary spending. In addition, unemployment remains stubbornly high, hampering overall consumer sentiment and spending.”


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