A lousy time to report good numbers

Target produced another month of solid same-store sales growth in July and had a lot of good things to say about its future prospects. But judging from the action in the company’s share price in the intervening days, it was as if second-quarter earnings per share had come in well short of analysts’ expectations. Target got caught up in the selling free-for-all that occurred on Friday when it appeared the United States was in for a credit rating downgrade followed by a further acceleration on Monday after the downgrade occurred.

Shares sank $2.21 on Monday to $46.44 which is near 52-week low territory $45.28. Monday’s drop followed a decline of nearly $3 from the $51.67 level where shares began the prior week.

While it is hard to look past the hysteria gripping the markets, under more normal circumstances, the type of information Target shared last week could just have easily sent shares in the opposite direction. For example, the 4.1% comp gain in July was on top of a 4.5 % increase in June. Those figures offset a weaker performance in May and left the company with a total 3.9% comp increase for the second quarter that was described as a meaningful acceleration from the first quarter. Once again, increased transaction sizes and customer traffic were responsible for allowing Target to come in at the upper end of its expectations for a low-to-mid single-digit gain.

“We’re very pleased with Target’s July sales performance, which again was at the high end of our expected range,” said Target chairman, president and CEO Gregg Steinhafel. “In addition, Back-to-School sales are off to a solid start, contributing to our confidence in the strategies we have in place and our ability to execute them, especially as we head into the 2011 holiday season.”

That’s a pretty optimistic tone and why not? The strategies that have been working so far have more runway ahead. The ongoing rollout of the company’s PFresh format and the resulting expansion of food and consumable offerings will see 380 stores remodeled this year on top of 350 last year. Accordingly, July saw commodity categories produce the strongest growth with grocery category comps in the mid to upper teens, while health care, beauty and household essentials increases in the mid to upper single-digit range. 

Strength in apparel continued in July, with a comparable-store sales increase just below the company average. Within apparel, the company said sales were strongest in intimate, hosiery and performance categories along with women’s and men’s apparel. The softest results were seen in jewelry and accessories.

While a lot went right for Target, the company is not firing on all cylinders. Comps in hardline categories decreased in the low single-digit range, with the strongest performance in sporting goods and the softest performance in music, movies and books. Comps in home were down slightly, with the strongest performance in housewares, which grew faster than the company average, and the softest performance in decorative home.

Perhaps the best news from Target’s perspective is that strength in the results is broad-based with little regional variability in reported results. Despite showing some strength in otherwise challenging economic conditions, Target maintained low to mid single digit same store sales expectations for August. As was evident again on Monday, there is simply too much economic turbulence in the market with the potential to disrupt consumer sentiment and spending for the company to express greater enthusiasm for its August performance.