Stakes high for Target to achieve January sales goals
Undaunted by the reality that two months into the fourth quarter same-store sales have failed to materialize at the pace originally envisioned, Target is sticking with guidance that calls for a low- to mid- single-digit increase in January.
Perhaps the company is counting on gift card redemptions to buoy sales or has high hopes for the Bullseye Bodega limited duration, pantry loading merchandising initiative promoted in this week’s circular. Either way, Target needs to hit, or better yet, exceed, its sales objectives this month or investors who have begun to question the viability of such strategies as PFresh and REDcards Rewards are going to get very nervous about Target’s longer term prospects and have issues with management’s credibility.
That’s what happens when a retailer overpromises and underdelivers as was the case with Target in December and to a lesser extent November. Same-store sales in December increased 1.6%, which was below expectations. To make matters worse, it was below the 1.8% increase recorded in November, which chairman, president and CEO Gregg Steinhafel said the company would exceed when December guidance was provided in the range of low- to mid-single digits. With sales below plan profits aren’t where they were supposed to be either so earning per share estimates had to be reduced to a range of $1.35 to $1.43 from $1.43 to $1.53.
“December sales were below our expectations as growth in grocery and beauty offset softness in electronics and music, movies and books,” Steinhafel said. “Sales and traffic were strongest in the week leading up to Christmas as guests waited to shop for last-minute gifts. In 2012, we’ll continue to pursue initiatives designed to deliver compelling value and a superior shopping experience against the backdrop of continued slow and volatile economic growth.”
What makes Target’s December results especially disappointing was the fact that the company was up against a relatively easy prior year comparison when comps increased just 0.9%. The 1.8% gain in November, also regarded as disappointing at the time, was at least a little more understandable as it came a against a prior year gain of 5.5%. As for the view that January comps will be in the low- to mid-single digits, the company is up against a prior year comparison, which saw a 1.7% increase.
If there was a bright spot amid the company’s December showing it was the fact that the majority of the growth the company experienced was driven by an increase in average transaction size, which suggests loyalty among core customers, which is an objective of REDcard Rewards.
Additionally, the company noted that December comps in food increased in the low teens, while comps in household essentials increased in the mid, single-digit range, with the strongest performance in beauty. Comps in apparel and accessories increased in the low, single-digit range, with the strongest performance in kids’ apparel and the intimate, hosiery and performance categories. The softest performance was in jewelry and accessories and shoes. Comps in hardlines decreased in the low, single-digit range, with the strongest performance in toys and the softest performance in electronics and music, movies and books. Comparable-store sales in home furnishings and decor decreased in the low, single-digit range, with the strongest performance in seasonal categories and the softest performance in decorative home.
More winners than losers in December
Target may have floundered a bit in December, but many retailers reported solid sales gains for the month. Overall, retail sales rose 3.4% at the 22 retailers tracked by the Thomson Reuters same-store sales index, compared with the 3.3% analyst forecast, however results were mixed.
That was the case with the nation’s discounters and department store retailers, with many chains citing unseasonably warm weather that sapped demand for cold-weather merchandise.
“Cold-weather categories, which are highly profitable and represent approximately 25% of our business in December, were down mid-teens on a percentage basis,” said Tony Buccina, vice chairman, president merchandising, The Bon-Ton Stores, whose December same-store sales fell 0.7%. The company widened its loss forecast.
In the department store and discount store sector, Costco, Target and Kohl’s were among the chains that missed expectations, while Macy’s Inc. Nordstrom and TJX Cos. all did better than was expected.
At Macy’s, same-store sales rose 6.2%. The company is raising its earnings outlook for the fourth quarter and full year due to a strong holiday season and will double its quarterly dividend to 20 cents a share. Macy’s is also increasing its share repurchase program by $1 billion.
Nordstrom said its same-store sales jumped 8.7% for the five weeks ended Dec. 31, easily topping Wall Street predictions for a 5.1% increase.
The company said the strongest regions were the South and Midwest, and that sales were particularly strong during the first week of the period, and the last two weeks of the period.
Meanwhile, The TJX Cos. announced a two-for-one stock split on the heels of a better-than-expected 8% increase in same-store sales for December. The chain noted that it made a strategic decision to clear cold weather apparel in the unseasonably warm winter.
“We enter January with very lean inventories and the flexibility to ship fresh merchandise with great values to our stores. As we look further out into next year, we believe we are very well positioned to continue to post strong sales and margins,” said Carol Meyrowitz, CEO, The TJX Cos.
Kohl’s said its December same-store sales fell 0.1%, missing the estimate for an increase of 2.2%. The chain said it would miss Wall Street’s fourth-quarter profit projection because of weak holiday sales.
JCPenney reported that its December same-store sales grew 0.3%, while total sales for the month fell 2.3%. Analysts had expected the chain’s same-store sales to fall 0.1% in December. JCPenney said it would report a fourth-quarter loss of 30 cents to 45 cents a share. The company said the loss would include 50 cents to 55 cents a share in restructuring and management transition charges.
For the month, children’s apparel and women’s accessories were the top performing merchandise divisions. While overall sales and traffic were softer than anticipated, JCPenney said better trends in its stores during the week leading up to Christmas and increases in traffic and orders on JCP.com during the key holiday shopping periods of the week after Thanksgiving and the week before Christmas.
Costco’s same-store sales rose 7% in December, below analysts’ projections for a 7.6% increase. The same-store sales reflected increases of 7% in the United States and 9% internationally. Excluding fuel, total comps were still up 7%, but were up 6% in the United States and 11% internationally.
Gap Inc. reported that its overall same-store sales were down 4%. All categories, which encompass the international unit as well as North America’s Gap, Old Navy and Banana Republic stores, suffered declines. Banana Republic posted a 2% decline, while sales fell 4% at Old Navy’s North America stores, 4% at Gap’s North America stores, and 6% at all international stores.
“We expected December to be highly promotional, and while we competed aggressively across our brands, our performance was below our expectations,” said Gap chief executive Glenn Murphy.
Destination Maternity Corp. said its same-store sales fell 4.1% in December amid continued promotions and markdowns. The chain lowered its earnings outlook.
The Children’s Place Retail Stores Inc. also lowered its earnings guidance for its fiscal fourth quarter, saying that higher costs and unseasonably warm weather hurt its performance as it sharply marked down prices to move winter clothing. The chain said that its guidance assumes that same-store sales will be about flat for the quarter.
Limited Brands, the parent of Victoria’s Secret and Bath and Body Works, said that its same-store sales jumped 7% in December. The results beat expectations and the company raised its fourth-quarter guidance. Analysts had expected a 5.7% rise.
The Buckle Inc. also did better than Wall Street expected. Its 8.9% increase easily topped predictions for a rose of 5%. The chain cited strong holiday sales of trendy jeans, outerwear and footwear.
In other specialty apparel same-store sales results for December, Zumiez Inc. saw its sales rise 10%, beating estimates of a 5.1% increase and the company also raised its fourth quarter outlook. Hot Topic’s sales rose 1.2%, with sales at namesake stores up 2.2% and sales at Torrid down 3.7%.
Ontario onslaught marks arrival of Target
Smart move by Target to open its first wave of Canadian stores in Ontario, as the province accounts for roughly one third of the nation’s 36 million residents and is home to Target Canada headquarters and distribution facilities.
Consistent with expectations around the new market entry, Target said the stores would open in March or early April as part of a larger strategy to open between 125 to 135 stores in Canada following the acquisition of 189 leases of Zellers locations. Those Zellers stores were not in good shape, and in order to bring them up to Target standards, the retailers is engaging in its own version of a Canadian stimulus package by investing between $10 million and $11 million in each location.
That’s a big budget for a remodeling project, but the stakes are high for Target as it needs to dazzle and delight new shoppers in Canada as it won’t get a second chance to make a favorable first impression. And assuming it does so in Ontario, there will be a ripple effect of positive energy and favorable media coverage throughout the country that will create buzz in other communities as they anticipate the arrival of “their” Target.
At least that’s how it is supposed to work if Target can effectively manage the expectations of Canadians, many of whom are familiar with the Target brand, and then exceeds them by delivering on the expect more, pay less value proposition in the context of Canada.
Meanwhile, in Western Canada, the Calgary Herald is reporting that the Target is building a distribution center in the town of Balzac just north of Calgary to support the retailer’s entry into the market next year. It is not a surprise that Target chose the Calgary area for its third Canadian distribution center as it is one of the nation’s major Western cities and a hub of distribution.
“The center will be approximately 1.3 million sq. ft. and will sit on just under 80 acres,” the paper quoted Target spokesperson Molly Synder as saying. The facility, as well as two other locations in Eastern Canada, is expected to be open by the time the company’s first stores open in early 2013. In the case of the facility near Calgary, it will be managed by a third party firm, Eleven Points Logistics.
“They will manage all recruitment and hiring and will communicate those needs and plans with local communities in the coming months,” added Snyder.
The Ontario store locations disclosed by Target include the following:
London Westmount, Westmount Shopping Centre
Kawartha Lakes, Lindsay Square Mall
Newmarket, Upper Canada Mall
Milton, Milton Mall Shopping Centre
Cambridge, Cambridge Centre
Toronto, Centrepoint Mall
Mississauga, Square One Shopping Centre
Ajax, Durham Centre
Orillia, Orillia Square Mall
Brampton, Shoppers World Brampton
London, Masonville Place
Windsor, Devonshire Mall
Toronto, Cloverdale Mall
Toronto, Shoppers World Danforth
Burlington, Burlington Mall
Toronto, East York Town Centre
Aurora, Aurora Shopping Centre
Fergus, Gates of Fergus
Hamilton, Centre Mall
Guelph, Stone Road Mall
Burlington, Millcroft Centre
Waterdown, Flamborough Power Centre
Whitby, Taunton Road Power Centre
Brampton, Trinity Common