Target Corporation (TGT), the operator of general merchandise and food discount stores in the United States, recently posted sales results for the four-week period ended August 28, 2010.
The company’s comparable-store sales for August 2010 rose 1.8%, following an increase of 2% registered in July 2010 and reflecting a sharp improvement from a decline of 2.9% witnessed in August 2009.
The increase in comps was the result of growth in comparable store transactions, partly offset by a marginal fall in average transaction size. Target witnessed healthy traffic counts driven by the remodel program and its ‘Expect More, Pay Less’ brand initiative.
Year-to-date, comparable-store sales climbed 2.2% compared with a fall of 4.7% in the same period last year. Management expects a low single-digit increase in comparable-store sales for September.
By categories – apparel, food, healthcare and beauty reported robust sales. On the contrary, electronics, video games and music delivered sluggish sales. Target’s sales were hit hard during the downturn as cash-strapped consumers focused more on food and essentials rather than discretionary purchases, which usually carry higher margins.
Based in Minneapolis, Minnesota, Target stated that net retail sales for August rose 3.4% year-on-year to $5,023 million, whereas year-to-date, sales climbed 4.5% to $35,307 million.
Target’s strategic initiatives should help drive comparable-store sales and operating margins in the long term. We expect the company to gain market share, and believe that increased focus on consumable items will boost sales in a sluggish retail environment. However, with the revival of the economy, the other merchandise categories are also gaining strength.
Target now tends to focus more on store renovations and enhancing store sales productivity, introducing smaller format stores, and eyeing opportunities in the international markets. However, unfavorable consumer spending patterns and increased competition still remain concerns.
Target, which currently operates 1,743 stores in 49 states, faces stiff competition from Wal-Mart Stores Inc. (WMT). We have a Neutral rating on Target. Moreover, the Zacks #3 Rank, which translates into a short-term ‘Hold’ rating, correlates with our long-term recommendation.
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
Zacks Investment Research
