Why Target Is Expected to Disappoint on the Sales Front
Comps continue to fall
Target’s (TGT) comps (or comparable-store sales) continue to fall, reflecting a decrease in store traffic and average transaction size. The graph shows that the company’s comps have fallen in the past four consecutive quarters. Meanwhile, its overall sales have fallen in the past six consecutive quarters. Notably, Target’s comps fell 0.5% in fiscal 2016, which compared unfavorably to the 2.1% growth it marked in 2015. Moreover, the trend is likely to continue in the current fiscal year, as the company’s comps slumped 1.3% during 1Q17 due to a 0.8% fall in traffic and a 0.6% fall in average transactions.
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Outlook for fiscal 2017
Target’s management has taken several strategic measures to accelerate sales including store remodeling, the opening of small-format stores, enhancing its digital business, and the addition of new brands to its successful signature categories. Plus, the company is also testing its next-day delivery service called “Restock” in Minnesota. All these measures are gaining traction as the company’s newly remodeled stores are generating higher sales. Moreover, the company’s small-format stores are more productive than the larger ones and have registered double-digit comps growth.
On the digital side of the business, Target is witnessing strong growth. Meanwhile, the company’s signature categories (which include style, baby, kids, and wellness) continue to gain market share and are performing well.
However, in light of the company’s recent performance and changing retail dynamics, Target is expected to disappoint on the sales front in fiscal 2017. Management is guiding for a low-single-digit decline in comps for 2Q17 and fiscal 2017. Meanwhile, the company’s overall sales are expected to remain muted. Analysts expect the company’s top line to stay flat in fiscal 2017, as positives from its strategic initiatives are expected to be offset by increased competition.
In the next part of this series, we’ll focus on what’s affecting Target’s profitability.