Finish strong: heat and holiday timing to aid July sales

After a weaker-than-expected showing in June, Target needs a solid performance in July to deliver on its second quarter sales and profit expectations.

June same-store sales increased a modest 2.1%, well below a 4.4% increase in May, but the deceleration didn’t cause the company to adjust its second quarter guidance. The company expects second quarter earnings adjusted to exclude expenses related to its entry in Canada to range from $1.04 to $1.14 and earnings that include the Canadian costs to range from 94 centers to $1.04.

However, the onus is on the company to produce a low-to-mid single-digit same-store sales increase in July that would give the company a blended second quarter gain of about 3%.

“Following better-than-expected performance in May, our June comparable-store sales were near the low end of our expected range,” Target’s chairman, president and CEO Gregg Steinhafel said after the June results were released earlier this month. “We believe these results, combined with our outlook for July, keep us on-track to deliver second quarter sales and adjusted EPS in line with the guidance we provided at the time of our first quarter earnings release.”

Growth this month is expected to come from some familiar source as was the case in June when the company said food grew at a low double-digit pace and health and beauty increased in the mid-single digits. Sales in the apparel and home categories increased in the low single-digit range, while hardline categories advanced in the mid-single digits.
Customer traffic was flat during the month with all of the growth coming from increased transaction size.

While June results were less than planned and well below the June 2011 comp increase of 4.5%, the end point of the reporting period and the timing of the July 4 holiday likely had somewhat of an impact on sales. The end of this year’s monthly reporting period fell on Saturday, June 30 with July 4 falling on the following Wednesday. That meant purchases from shoppers who waited until the last minute wouldn’t be reflected in the June results.  Conversely, the June reporting period the prior year ended on Saturday, July 2 and July 4 fell on the following Monday ensuring a larger percentage of Fourth of July sales fell in the June period. The situation is likely to benefit July sales comparisons.