Discounters show strength in February; Target sales up 7%
New York City — In a month that was solid overall, the discount sector showed its muscle, turning in a strong February same-store sales performance nearly across the board.
After suggesting last week that sales had accelerated and returned to a pre-holiday pace, Target Corp. reported Thursday that same-store sales for the month rose 7%, beating Wall Street’s expected 5.2%. Total sales during the period rose 8% to $5.13 billion, boosted by strength in the food, healthcare and beauty categories. Accessories and apparel performed above average as well.
Meanwhile, The TJX Cos. saw same-store sales surge 9%, beating the 7% gain expected by Wall Street. Sales for the four-week period ended Feb. 25 were $1.6 billion, up 12% over last year’s $1.5 billion. “We believe that very favorable weather patterns during the month helped boost demand for spring apparel,” said Carol Meyrowitz, CEO.
Additionally, Costco Wholesale Corp. was another winner during the month, posting an 8% same-store sales rise, just edging the predicted 7.6% gain. Earlier, the membership club reported a quarterly profit rise of 13% to $394 million.
Other February same-store results among the discounter category included:
Ross Stores same-store sales rose 9%, beating Wall Street’s expected 4.6% rise;
SteinMart rose 0.7%, missing the predicted 1% gain;
Cato same-store sales dropped 5%;
Stage Stores rose 3.7%;
Fred’s dipped 0.7%, missing analysts’ expected 0.2% gain; and
Duckwall-Alco same-store sales rose 1.1%.
Seven is Target’s lucky number for 2012 fiscal year
MINNEAPOLIS — What a way to begin the new fiscal year. Target reported a stunning 7% same-store sales increase in February that shattered the company’s guidance for a 4% gain thanks to unseasonably warm weather, which boosted shopper traffic and transaction sizes.
The sales increases was well above the company’s expectation, which prompted chairman, president and CEO Gregg Steinhafel to say, “We’re very pleased with the pace of our sales since the holiday season, though we continue to plan for a first quarter comparable store sales increase of around 4%.”
The company said every region of the county experienced a healthy increase in comparable-store sales and inventories were in good condition.
Comparable-store sales across the company’s various merchandise categories experienced increases. Food comps increased in the low teens. Comparable-store sales in household essentials increased in the mid single-digit range, with the strongest performance in healthcare and beauty. Comparable-store sales growth in apparel and accessories was slightly ahead of overall company performance, led by double-digit growth in women’s apparel, performance activewear and men’s apparel.
Long term direction is clear, short term not so much
The surge in February same-store sales Target reported Thursday morning didn’t come as a surprise to incoming CFO John Mulligan who alerted the market to the above plan performance when Target reported fourth-quarter results on Feb. 23.
“As we look at our business today, we feel very good about where we are headed,” Mulligan said last week during Target’s earnings call. He currently serves as SVP treasury and accounting but assumes CFO duties on April 1 from Doug Scovanner who is retiring. “Our current comparable-store sales forecast for the quarter is roughly 4%, and for what it’s worth, our February comps have been running well ahead of that pace. And as we all know, we shouldn’t get too excited about single month trends.”
Indeed. There is plenty that could go wrong in March and April between the uncertainty of where fuel prices are headed, the vagaries of weather and the future trajectory of a weak economic recovery. From Target’s perspective, the company is basing its business forecasts on a conservative view that the pace of economic recovery will remain slow and uncertain.
“We’ve been encouraged by recent improvements in some key economic measures, and we’re pleased with the pace of our sales since the holiday season, yet we expect we’ll continue to see mixed signals in the economy going forward,” Target chairman, president and CEO Gregg Steinhafel said during the fourth quarter conference call. “We’re continuing to plan our business appropriately, maintaining flexibility to chase business if we see more robust improvement in jobs, housing, and household income. Yet, even our base case assumption of a continued slow and uneven recovery would allow us to stay on track to achieve our long-term financial goals of $100 billion or more in sales and $8 or more in earnings per share by 2017.”
To achieve those lofty targets, Scovanner laid out the assumptions that underpin the company’s outlook.
“We expect to achieve the sales performance five years from now through a combination of achieving 3% average annual growth in our U.S. comparable-store sales and by generating $6 billion or more in annual sales in Canada by 2017,” Scovanner said.
The sales growth is expected to translate in earnings per share of $8 or more because the company intends to maintain its current operating margin rate of roughly 10% while using some of the cash that is generated to retire between 3% and 4% of outstanding shares annually.
“In five years, this recipe would result in about $7.20 in earnings per share on $94 billion plus in U.S. sales and about 80 cents a share on $6 billion plus in Canadian sales. This performance would also enable us to grow our dividend to $3 or more per share by the end of that period, representing a compound growth rate of about 20% per year, matching our dividend growth rate actually achieved over the last five years.”