December outlook is challenging

Target’s worse-than-expected November sales results and a resurgent Wal-Mart raise the prospect of a disappointing December, as Target’s trend-right image continues to work against it this holiday season.

In November, the company missed its own guidance for negative same-store sales between 6% to 9% and reported a 10.4% decline. Sales for the reporting period ended Nov. 29 declined 6.1% to $5.6 billion from $5.97 billion last year.

“Results from post-Thanksgiving holiday sales, particularly Friday, were stronger than the rest of the month, but were insufficient to offset earlier weakness,” said Target president and ceo Gregg Steinhafel. “Our sales results continue to reflect a particularly challenging environment and consumers remain very cautious and event-driven in their purchasing behavior.”

The big decline in November was due in large part to a calendar shift that had Thanksgiving occurring very late this year, compared to very early last year. As a result, this year’s November reporting period excluded an entire week of post-Thanksgiving sales. Even so, Target has been trending down since the midpoint of the year, as the severity of the nation’s economic troubles has caused consumers to restrict spending on discretionary items and seek out retailers like Wal-Mart that have an established reputation for low prices.

The worse-than-expected drop in November results was somewhat expected by analysts, who were paying attention to cfo Doug Scovanner’s comments during Target’s third-quarter conference call on Nov. 17. At a little more than halfway through the month, Scovanner noted the company’s business was trending lower than planned.

Particularly worrisome for a retailer such as Target is the strong results seen on Black Friday and Cyber Monday. On an industry-wide basis, sales on both days were stronger than expected. However, that merely highlights the fact that it takes a tremendous amount of margin-depressing sales promotions to persuade consumers to part with their money.