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Target Reports Dismal Holiday Sales

Zacks Equity Research

The holiday season remained a disappointment for Target Corporation (TGT), 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), 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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