Groceries Impact Target's Q2 Comps

MINNEAPOLIS Target Corp. here last week said its expanded grocery initiative is driving more frequent shopping trips but also forcing down the average price per item sold, as the company's second-quarter sales were lower than expected. The company said comparable-store sales were up 1.7% for the period, which ended July 31, as the number of transactions increased 2.4% but the average sales ticket

MINNEAPOLIS — Target Corp. here last week said its expanded grocery initiative is driving more frequent shopping trips but also forcing down the average price per item sold, as the company's second-quarter sales were lower than expected.

The company said comparable-store sales were up 1.7% for the period, which ended July 31, as the number of transactions increased 2.4% but the average sales ticket declined slightly, in part due to the P-fresh remodels that have added more groceries to traditional Target discount stores.

“With the number of P-fresh stores increasing every quarter, these locations are gaining importance in their contribution to our overall comparable-sales and traffic,” said Douglas Scovanner, chief financial officer, in a conference call with analysts last week.

In the second quarter, these stores contributed about 0.7 percentage point to Target's consolidated rates on those metrics, he said, noting that this fall the P-fresh remodels can be expected to add a full percentage point to comparable-store sales.

The company has remodeled “well over” 300 stores so far, including 116 in the second quarter alone. The company also tested a new remodeling strategy at a store in California where it closed for five days to remodel rather than remain open for a 13-week remodeling. That strategy may be employed at a limited number of stores in the future.

“The performance of our remodeled stores continues to meet or exceed the expectations we laid out in January in terms of traffic, total sales performance, and the amount of cross shopping outside of food and the crossover categories,” said Gregg Steinhafel, chairman, president and chief executive officer. “And, very importantly, we continue to hear directly from our guests that they love the look of their new store, and they appreciate the time they save when they can complete their grocery shopping at Target.”

In addition to P-fresh and other merchandising initiatives, Target also said it is benefiting from a new program it tested in the Kansas City, Mo., market in which it is offering 5% off for purchases using Target-brand debit or credit cards. The program is being rolled out chainwide in October.

Although sales for the second quarter were below analysts' expectations, cost savings helped drive a 14.3% gain in net income for the quarter, to $679 million. Total revenues — including credit-card proceeds — grew 3.1%, to $15.5 billion. Sales less credit-card revenues grew 3.8%, to $15.1 billion.

Through the first half, net income was up 21%, to $1.35 billion, on a 4.1% gain in revenues, to $31.1 billion. Sales were up 4.7%, to $30.3 billion.

The company said consumers seemed to pull back on spending in the second quarter after trends had been improving in the previous two quarters.

“While no one has a clear view of the future, recent results in both of our business and the economy reinforce our perspective that the current recovery will be slow and inconsistent,” said Steinhafel. While guests are still cautious, we're encouraged that we continue to see strong traffic, very healthy sales in discretionary apparel and strong market share gains in virtually all of our frequency categories.”