Target Beats the Street with Healthy Sales Numbers

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Target (TGT) exceeded analysts' sales forecasts for its second quarter, and is banking on brisk consumer shopping patterns to continue at its 1,772 stores for the remainder of the year.

To that end, the nation's second largest discounter raised its annual profit forecast to as much as $4.40 a share from a maximum of $4.30 a share, as it adds more fresh food to stores, gets more shoppers to spend with its 5%-off REDcard and penetrates urban areas with the CityTarget format.

Target revenues rose 3.5% to $16.78 billion in the quarter that ended July 30, exceeding analysts' estimates.

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Comp-store sales, revenue at stores opened at least a year, increased 3.1 percent, while earnings were $704 million, flat with the year-ago period.

The comp-store sales gain was driven by an increase in the number of transactions as well as "an increase in the average transaction amount," said Deborah Weinswig, Citi retail analyst, in a research note.

Not everything sold well, though. Electronics had another weak quarter "as this category continues to reflect mature product cycles in several categories. Most notably for us is video game hardware and software," said Kathryn Tesija, Target's executive vice president of merchandising, during the call.

And down the road, economic headwinds, such as the impending fiscal cliff -- which is expected to put a crimp in consumers' discretionary income -- could dampen business at the chain, CEO Gregg Steinhafel said during a conference call.

"As we look ahead, we are mindful of the continued economic challenges facing many of our guests, huge deficits at the state and national level and the fiscal cliff facing everyone at the end of the year," Steinhafel said. "This fall's presidential election will likely produce an avalanche of negative ads and elevate the uncertainty caused by potential policy changes that could follow the November vote."

Beyond the U.S. market, Target is gearing up for its international debut with the launch of stores in Canada next year.

5 Retailers That Are Showrooming-Proof
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Target Beats the Street with Healthy Sales Numbers

At a time when Best Buy (BBY) is closing stores and looking for a new CEO, rival hhgregg is thriving.

The consumer electronics retailer saw net sales climb 21% in its latest quarter, and it's planning to add 20 to 22 new stores in its fiscal year that began in April.

Why is the awkwardly named hhgregg growing at a time when Best Buy is shrinking? Well, hhgregg emphasizes heavy appliances and mattresses, which are among the many items that may be too big to effectively sell online. Can you imagine the shipping charges on a washer/dryer combo? It also helps that hhgregg doesn't rely on regular traffic from folks picking up the latest CDs or DVDs, as digital delivery of music and video is also clobbering Best Buy.

The cheap-chic discounter is tackling the showrooming trend head-on. Earlier this year, the company revealed that its plan to keep (AMZN) at bay involves a steady diet of exclusive products.

Target routinely teams up with trendy designers for product lines that can only be purchased at Target. If vendors can't provide the chain with Target-exclusive products, the company is asking for pricing discounts so it can match online-only rivals.

It's not a perfect strategy, but Target also has a level of panache that's lacking at its rival discount department stores. People gab about going to Target -- or "Tar-zhay" -- on Twitter or Facebook. You'll probably never see anyone bragging about heading out to Kmart.

Warehouse clubs are used to cutting costs to the bone. The exposed beams, stacked racks, and frills-free decor aren't an intricate theme. The warehouse setting is deliberately bare-boned to pass the savings on to end users.

It also doesn't hurt that items are being purchased in bulk for deep savings. And, naturally, the perishable nature of many of its items also makes them a natural choice for in-store, rather than online, purchases.

How popular is Costco? Well, it pushed through a 10% increase in its monthly membership fee -- yes, Costco shoppers have to pay for the right to shop there -- and customers didn't flinch at all.

Another Best Buy rival that's showing no signs of online stores nibbling at its market share is Conn's. The company's latest quarter saw comparable-store sales soar 17.8%. As Best Buy copes with shrinking margins, Conn's gross margins expanded to the point that it was able to deliver quarterly operating profits and net income that more than doubled over the prior year's performance.

Part of Conn's recipe for success is an emphasis on the appliances and mattresses that have been keeping hhgregg immune from the deadly dot-coms, but Conn's also goes even further by offering full furniture lines.

Conn's 64 stores are also in the farming heartland of Texas, Louisiana, and Oklahoma -- places where the prevalence of homes on large tracts of land benefit its sales of lawn tractors and zero-turn mowers.

CarMax is the country's largest retailer of used cars. Its 112 used-car superstores offer haggle-free pricing, and they'll buy your used car even if you don't buy one. Why not? The company's gross profit on used cars is three times greater than the gross profit on new vehicles.

Being a category killer has its advantages. Even the success of eBay (EBAY) with its eBay Motors ultimately can't compete with CarMax's regional presence in 56 markets.


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