Expect the unexpected

Thursday promises to be a dark day for the retail industry as companies release December sales results that are expected, with few exceptions, to show a decline from the prior year. In Target’s case, the company’s guidance offered last month called for a same-store sales decline of mid-single digits to low-double digits, which begs the question of whether the retailer’s finance team took a bleak enough view of the consumer spending environment and the effectiveness of a strategy to emphasize the “pay less” aspect of the “expect more, pay less” brand positioning.

Target misjudged on points during November when its results were worse than it first thought. Same-store sales declined 10.4% compared with an initial forecast of 6% to 9% even though the reporting period included the benefit of Black Friday sales. A mid-November comment by CFO Doug Scovanner during the release of Target’s third-quarter results softened the blow, but during December, Target had no such opportunity to provide a mid-month update. Meanwhile, visibility into holiday sales overall has been very cloudy with a relentless flow of negative economic news weighing on consumer sentiment so strongly that it wasn’t offset by a precipitous decline in gasoline prices.