Improved outlook for May

Target may have come up short on its April sales performance, but same-store sales are expected to turn positive this month, with projections calling for an increase in the range of low- to mid-single digits. Last month, the company posted a 5.9% decline that was worse than the 2.3% decline analysts had forecast and short of the company’s own guidance for a low single-digit decline. So what happened? For starters, the company said Easter caused a higher-than-anticipated volume of sales to be pulled forward to the March reporting period. Target reported a 10.3% same-store sales increase in March.

News last week of the disappointing sales caused a knee-jerk response that negatively affected Target shares, but those with a longer view found a lot to like in the company’s report. For starters, sales in high margin categories remained particularly strong, which suggests shoppers are willing to part with cash for purchases in discretionary product categories when presented with compelling merchandise. In addition, inventories were said to be in very good condition indicating minimal markdown exposure even if the company misses on some of the numerous fashion bets and merchandise exclusive that hit stores the past few months.

In addition, the company said profit plans were being met for its retail and credit operations and that it would exceed -- by an unspecified amount -- analysts first quarter earnings per share consensus estimates of 86 cents.

One thing that wasn’t discussed in the April results was the impact, if any, of competitors’ action. After several months of reporting increased traffic to its stores, Target said more than half of the sales weakness in April was caused by fewer people shopping its stores. Easter no doubt had an impact, but early April is also when Walmart kicked of its aggressive price rollback program along with extensive advertising and in-store promotion.