‘Tis the season for tempered expectations at Target

Target may have been up against a difficult prior-year comparison when it reported a 1.8% November same-store sales increase, but that hardly seems like a good excuse for an anemic number to begin the fourth quarter.

Technically speaking, the 1.8% gain was within the company’s guidance range that called for a low to mid single-digit increase, and prior-year comps in November did advance by a healthy 5.5%. Even so, this year’s meager increase has to be considered a disappointment as it comes amid reports of the record overall retail sales in stores during Thanksgiving weekend as well as online. Target also had a couple of other factors that should have worked in its favor this year since roughly 400 more stores were operating under the PFresh format compared with last year and the REDcard Rewards program with its alluring 5% savings proposition had a full year under its belt, having launched in October 2010.

The impact of those initiatives didn’t translate to strong overall growth, although Target did report its 1.8% increase was driven by an increase in transaction size, which is one of the side effects of increased REDcard utilization, and the strongest performing categories were those that get expanded during PFresh remodel.

For example, there was a mid-teens comps increase in the food category followed by mid-single-digit gains in the household essentials area, which includes the beauty category where performance was the strongest. However, comps in the apparel and accessories areas where Target traditionally does well were flat, while hardlines and home furnishings and decor comps declined in the low single digits.

This uneven category performance is occurring amid a still challenging economic climate in which a resurgent Walmart has reported same-store sale growth and improving traffic trends. In fact, Target had already acknowledged in discussing third-quarter results last month that the return of layaway at its larger rival had impacted early season sales of toys. Now comes the revelation that Target’s weakest performance geographically in November was in the South and Southeast, which happen to be areas where Walmart operates its highest concentration of stores. Conversely, the area where Target experienced its strongest results was California where it has a high concentration of stores and considerably less overlap with Walmart. Walmart also trumped Target by offering its first round of Black Friday specials at 10 p.m. on Thanksgiving Day versus Target’s midnight opening.

As for Target’s performance in December, the company’s guidance again calls for a low to mid single-digit gain and chairman, president and CEO Gregg Steinhafel has indicated December’s comp increase will surpass the 1.8% gain in November. Failing to do so would be a monumental disappointment as comparisons to the prior year are exceptionally easy. December 2010 comps increased a scant 0.9% and that was on top of a December 2009 increase of 1.8%.

“Our view of December remains the same – we expect a competitive and promotional environment as consumers continue to focus on value,” Steinhafel said. “At Target, we’ll provide our guests with great deals and low everyday prices on a unique assortment of items for gift-giving and holiday entertaining.”