Cautious optimism evident in July outlook

Target is looking for a low to mid-single digit increase in July same-store sales even though it posted a June increase of 4.5% that exceeded analysts’ estimates and came in at the high end of the company’s range of anticipated results.

The outperformance in June followed a weaker-than-expected 2.8% increase in May and left the company with a blend figure of 3.8% for the first two months of the second quarter. That puts the company squarely in the middle of its second quarter guidance range, which calls for a low to mid-single digit increase and positions July as somewhat of a make it or break it month in terms of whether Target is able to exceed analysts’ top line estimates and propel shares higher.

That certainly was the case last week when release of the 4.5% June increase sent Target shares up more than $3 to close at $51.67. The company has previously said it expects same-store sales growth to accelerate during the remainder of the year, but has also cautioned that the pace of that acceleration is likely to be uneven.

Even so, Target is continuing to enjoy a pretty predictable pattern in its business results as more PFresh store formats enter the store base. For example, in June the company reported growth in average transaction sizes and an increase in customer traffic. And once again, the strongest performance was in the grocery category where comps increased in the mid-teens and in health care, beauty and household essentials where comps were in the mid to uppers single digits. The company also said apparel comps were “quite strong” and in line with the total monthly gain of 4.5%, which bodes well for second quarter profits.

Other large segments of the company’s business produced uneven results. For example, the hardline businesses experience a slight decline, but electronics posted an increase that was inline with the company’s average. A similar situation existed in the home areas, where overall comps declined, but categories such as tabletop, sheets and storage experience an increase above the company average.

The company also noted that its comparable sales performance was “remarkably consistent” across the country and it ended the month with inventories “in very good condition.”