Earnings under pressure

There’s not much to like about a 3.3% decline in same-stores sales, especially when it is the seventh consecutive month in which sales have declined. However, if there is one thing Target can take comfort in, it is the fact that the business appears to have stabilized and the company has proven adept at accurately forecasting sales declines.

Total sales for the four-week period ended Jan. 31, increased slightly less than 1% to $4.1 billion, with the major pressure on sales coming from a reduction in customer traffic, most likely due to the perception among cost-conscious consumers that Target is less competitive on price than other retailers. Nevertheless, Target’s customers in January bought plenty of food, consumables, electronics and health care products, driving those categories to positive territory, while the women’s apparel category had a decline in the low 20% range and the home category had a high-single-digit decline.

The better than expected same-store sales showing in January follows a similar experience in December when the company produced a negative 4.1% comp. Again, not a great showing, but much better than the negative 8.8% analysts expected, and it was at the low=end of guidance for a decline in the mid-single- to low-double-digit range.

The sales outperformance in both months was attributable in large part to clearance and markdown activity, which along with other factors such as increased bad debt reserves and a major work force reduction, will result in the company producing fourth quarter earnings per share below the 86 cents a share figure that analysts’ were forecasting last week when comps were released. Fourth quarter and full year results are scheduled for release on Feb. 24.