Target released their Q1 numbers, showing positive sales trend, positive comp store sales and a rise in net profit, but didn’t hit the marks set for them by Wall Street and their stock took a quick hit in an active day of trading.
The numbers: overall revenue up 12.1%, comp sales up 5.1% (compared to 6.2% Q1 LY), net profit up 12%, but selling, general and administrative expenses were up 15.3%. CFO Doug Scovanner said that the rise in expenses was due to the construction of three distribution centers and the rise in the number of stores they remodeled this quarter. He maintains that the yearly expenses for this capital improvement will be flat from last year, explaining: “As you know, as well, we remodel and expand a very substantial number of stores each year. We dont even remotely try to time that by quarter for any particular purpose other than doing it when it makes the most sense. That drove a bit more expense in the quarter than we would expect for the balance of the year. That line item, per sae, should end up being flat year-over-year, but ended up putting some pressure on this quarters expenses.”
Scovanner talked about the positive response to the new apparel collections, including those by Luella Bartley and Tara Jarmon and growth in areas such as outdoor, electronics, and food. He also cites the growth in the average amount of items per transaction vs. the growth of the price per item.
Food seems to be an area in which they are making a bigger push. They are in the process of bringing all of their stores up to a newer food prototype layout, with about 650 of their 1418 stores having this new layout today, as many as 950 having an expanded food layout by year’s end and between 50 and 75 stores which will have an even larger food offering than the prototype.. Responding to a question, President Glegg Steinhafel said that although they do not have plans to offer fresh food (produce / meats) in the stores with the largest layouts, they will be focusing on offering a larger selection of their current assortment.
Steinhafel also commented on soft sales in home, the Global Bazaar shop concept from this past winter and tweaks that they are planning for the next year. They are looking to cut down the average unit price of the products in this area in order to spur more impulse buys, rather than having the customer wait for the items to go on sale.
To me, this last part actually makes a lot of sense. Target did get a lot of positive press for their global bazaar shop, but better merchandise mix between full scale furniture and smaller decorative/useful items will allow for more impulse buys, as they say. I will be very interested to see what tweaks they implement as the area was very beautiful, well designed, but didn’t seem to hit the pricing mark for a lot of their consumers.
Target posted very good numbers but Wall Street went into a little panic. Things wil llevel out and I think Targets yearly prospects look fantastic, as always.
Stephen Simpson at the Motley Fool feels that soon may a good time to buy TGT:
OK, so I’ve been positive on Big 2 discount retailer Target (NYSE: TGT) for a little while now and it’s gone all of nowhere. But the closer this one gets to its 52-week low, the more interested I get. I don’t often like to buy huge companies in highly competitive businesses, but at the right price I’ll consider just about anything.
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I can understand the idea of staying away from Target because of overall fears about the health of the U.S. consumer. That’s not to say that I agree, but I at least can see the point there. In any case, these shares are getting more than a little interesting. A few more points on the downside and I just might add these to my own shopping cart.
More coverage from BusinessWeek.
Full transcript of the conference call here.
Full SEC form 8-k filing here, via Yahoo.