What Target’s 2Q comp acceleration means for Walmart

Amid the gloom and doom this week around reduced traffic and a waning perception of its price advantage, Walmart got more potential bad news in the form of strong results from arch rival Target.

For the second consecutive month, Target said it monthly same-store sales were at the high end of its guidance range and meaningfully accelerating. In July, Target produced a comp increase of 4.1% on top of a 2% increase last year and compared with a 4.5% increased last month. 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.

Strength in June and July offset weakness in May and gave Target a 3.9% second-quarter comp increase the company characterized as a meaningful acceleration from the first quarter.

“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.”

Key among those strategies is the ongoing rollout of the company’s PFresh format and the expansion of food and consumable offerings with 380 stores due for remodel this year on top of 350 last year. According to the company, 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.

The other interesting thing about Target’s results is the strength is broad-based with little regional variability in reported results. The company didn’t let two solid months go to its head though and maintained low to mid single digit same store sales expectations for August. There simply is too much economic turbulence in the market with the potential to disrupt spending even if Target does appeal to a slightly more affluent shopper than Walmart.