Fresh & Easy to open two stores in San Francisco this summer
SAN FRANCISCO — Fresh & Easy has announced the opening dates for its first two stores in San Francisco.
The retail chain said that the stores, which will open on June 22 and Aug. 24, will create more than 50 jobs. What’s more, Fresh & Easy also invites area residents to nominate a local, nonprofit organization to receive a $1,000 donation for each new store opening. Based on the nominations from the neighborhood, store employees will select the winning charity.
"We could not be more thrilled with the strong performance of our first 11 stores in Northern California and we’re excited to get our doors open in San Francisco," said Tim Mason, Fresh & Easy CEO. "Judging by the fantastic reception we’ve seen from customers throughout the Bay Area, we are certain these stores will also be a hit."
PFresh, REDCard boost Target’s top line
With the dust settled from Target’s first-quarter earnings announcement last week, it has become quite apparent the company would not be faring well were it not for the beneficial effects of the PFresh remodeling program and last fall’s introduction of 5% REDcard Rewards.
The two initiatives combined contributed more than 1% apiece to Target’s first-quarter same-store sales increase of 2% and in essence allowed the company to avoid posting a negative comp. An overall sales increase of 2.8% pushed Target’s first-quarter sales to $15.6 billion, and the modest sales growth translated to a 9.8% increase in earnings per share of 99 cents, which was four cents better than analysts’ consensus estimate of 95 cents. Net income increased 2.7% to $689 million. Contributing to the difference in growth rate percentage between net income and earnings per share was a share repurchase program that saw the company spend $819 million to buy back 15.4 million shares at an average price of $53.32.
While PFresh, now in 550 stores and 300 more to come this year, and the REDcard Rewards program were credited with aiding the top line, it was the company’s credit card business that saved the day from an overall profit standpoint. Operating profits for the retail segment actually declined 4.2% to slightly more than $1 billion during the quarter due to PFresh remodeling costs that and the margin pressures associated with reducing prices by 5% for the 7.6% of shoppers who took advantage of the rewards program. The gross margin impact was fairly substantial with the rate dropping to 30.4% compared to 31.3%.
Conversely, the credit division enjoyed a sharp rebound in profitability. Credit card operating profits grew by 75% to $194 million as bad debt expense was virtually non-existent at $12 million compared to $197 million the prior year.
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.”