Target Corporation (TGT), the operator of general merchandise and food discount stores in the United States, recently posted lower-than-expected sales results for the four-week period ended May 28, 2011 due to softness in traffic in the second half of the month. Moreover, consumers remain cautious on their spending on account of higher gasoline prices and commodity inflation.
The company’s comparable-store sales jumped 2.8% for May 2011, following an increase of 13.1% in April 2011, and compared with a growth of 1.3% witnessed in May 2010. Year-to-date comparable-store sales climbed 2.2% versus an increase of 2.5% experienced in the prior-year period.
Category wise, grocery and apparel reported healthy sales. However, sales remain sluggish across home goods, electronics, toys, and health and beauty merchandises.
Based in Minneapolis, Minnesota, Target announced that net retail sales for May rose 3.8% to $4,799 million from $4,622 million reported in the prior-year period. Year-to-date sales climbed 3% to $20,379 million.
Target’s strategic initiatives such as REDcard Rewards program and P-fresh in-store food and grocery sections should help drive comparable-store sales and operating margins in the long term. We believe that increased focus on consumables will boost sales in a sluggish retail environment.
The company is also managing its costs effectively, resulting in margin improvement and bottom-line growth. Target now tends to focus more on store renovations and enhancing store sales productivity, introducing smaller format stores and opportunities to open stores in international markets. However, unfavorable consumer spending pattern and increased competition still remain concerns.
Target, which currently operates 1,755 stores in 49 states, faces stiff competition from Wal-Mart Stores Inc. (WMT). Currently, we have a long-term ‘Neutral’ rating on the stock. However, Target holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation.
TARGET CORP (TGT): Free Stock Analysis Report
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