The outlook on the outlook
Target has a lot of things going right for it right now with some decent sales momentum and a mix of current and long term initiatives to drive growth. Even so, Target is in the same boat as other retailers who are posting solid profits, but doing so in an uncertain economic climate where fragile consumer confidence makes it hard to get to aggressive when it comes to forecasting future performance.
This phenomenon was evident when Target reported a July same-store sales increase of 4.1% that was at the upper end of the company’s guidance range for the second consecutive month. The company also indicated that back-to-school sales were off to a solid start and talked about how the 3.9% second quarter same-store sales increase was a meaningful acceleration from the 2% gain in the second quarter.
Despite this performance and optimistic tone, Target maintained August same-store sales guidance in the low to mid single-digit range, and if the company holds true to form on Wednesday when second quarter results are released executives will do their best to temper whatever enthusiasm might emerge. And why not? Nothing has changed in terms of the macroeconomic outlook and if anything consumer confidence has been stung by the incessant chatter over the nation’s credit downgrade.
Even if Target’s second quarter performance were phenomenal, now would not seem to be the time to thump one’s chest and needlessly elevate expectations. Of course that didn’t stop Macy’s chairman, president and CEO Terry Lundgren last week after the department store chain reported a 6.4% comp increase earnings of 55 cents than beat analysts’ consensus estimate of 48 cents.
“This was our most successful second quarter and spring season in more than a decade,” Lundgren said. “Importantly, it came on top of an impressive first half performance last year. To date this year, we have driven significant additional sales growth, gained market share, maintained strong margins, managed expenses and generated a very healthy level of cash.”
Buoyed by success during the first half of the year, Macy’s increased its full year sales and earnings outlook. The company now expects same-store sales in the second half of fiscal 2011 to be up between 4% and 4.5%, which would give the company a full year increase in the range of 4.8% to 5.1%. That is markedly higher than the full year forecast of 3% provided at the beginning of the year. In addition, full year earnings per share are now expected to total between $2.60 and $2.65 per diluted share, well above guidance of $2.25 to $2.30 provided at the beginning of the year.
“All of our key strategies are working, and working in unison, to help us better understand our customers, deliver the assortments and value they want and expect, and engage them in stores, online and via mobile devices with a shopping experience that is convenient and compelling,” Lundgren said. “Our Macy’s and Bloomingdale’s brands are continuing to evolve, testing new ideas and developing the extraordinary level of talent and expertise within our company. All of these factors have helped us to overcome an economic environment that remains sluggish. As we continue to closely monitor developments in the economy and financial markets, we are cautious but optimistic about this fall and are staying focused on those factors we can control.”