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Analyst Blog

The holiday season remained a disappointment for Target Corporation (TGT - Analyst Report), the operator of general merchandise and food discount stores in the United States, as the company came up with flat December 2012 comparable store sales (comps) compared with a 1.6% increase in the prior-year period.

Results also fell short of management’s expectation of low-single digit increase in comps as the company witnessed soft sales during the first three weeks of the month. However, results improved sequentially as Target registered a 1% decline in comps for November 2012.

The company stated that the increase in average transaction size was offset by a low single-digit decrease in comparable-store transactions, which hampered the results.

When compared to its peer, Costco Wholesale Corporation (COST - Analyst Report), Target seems to be losing market share as the former continues to report strong sales results. Costco witnessed an augmentation of 9% in comps during the period under review.

Category wise, Target reported solid sales in Food, with health and beauty and apparel increasing in the low single-digit. The company stated that sales in home were marginally up, while hardlines witnessed a decline in the mid single digits.

Minneapolis, Minnesota-based Target Corporation announced that net retail sales for December inched up 0.8% to $10.21 billion from $10.14 billion reported in the year-ago period. Year to date, Target registered a 2.7% increase in comps with a 3.3% rise in net retail sales to $65.99 billion.

Going forward, the company expects its fourth-quarter earnings to meet or exceed the lower end of its earlier announced guidance range of $1.64 – $1.74 per share. The current Zacks Consensus Estimate stands at $1.50 per share for the fourth quarter. Moreover, the company expects low single-digit increase in January comps.

Target is projected to gain market share, and the focus on consumable items will likely boost sales. Target’s efficient marketing, multi-channel strategy, innovative product offering, compelling pricing strategy and new merchandise assortments are expected to drive comps and operating margins over the long term.

Currently, we prefer to have a long-term ‘Neutral’ recommendation on the stock. Moreover, Target holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

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