Comps guidance will be key

The first-quarter financial results Target is set to report tomorrow will be interesting, but the bigger story promises to be the company’s expectations for second-quarter same-store sales growth. The consumer spending environment remains very uncertain, and, although confidence has improved, shoppers remain very selective, and there really isn’t much data to suggest spending will improve anytime soon for home and apparel categories on which Target is highly dependent.

The uncertainty of the spending environment was highlighted last week when Wal-Mart reported first-quarter results and said it expected same-store sales at its U.S. stores to increase in a range of flat to 3%. That is an abnormally wide range of guidance, and it suggests that Wal-Mart, despite having unrivaled insight into the consumer spending climate afforded by its size, essentially has no idea what to expect in the second quarter. Target doesn’t enjoy the predictability of Wal-Mart’s massive food and consumables business so its ability to provide comps guidance is even more challenging. In addition, a major complicating factor in accurately forecasting second-quarter sales is the fact that retailers are cycling against the second quarter of 2008 when millions of Americans received, and promptly spent, economic stimulus checks distributed by the federal government.