Target's home business still working its way back

Retail Editor 8, August 18, 2010

Minneapolis - While home was not one of the brightest spots at Target Corporation during the second quarter, category sales are improving thanks to recent departmental transformations and the back to college-related season.

The 1,743-unit discount department store chain is "seeing positive results in our efforts to clarify the assortments and aesthetic of our Home, Target Home and Room Essentials [programs], positioning us for a successful back-to-college," explained Kathryn Tesija, evp, merchandising during the company's quarterly conference call today.

And so far, "sales results for both back to school and back to college have been encouraging," she also noted.

Setting the tone for improvments in the home category have been the "merchandise reinventions" incorporated into Target's remodeled store initiative this year. This effort calls for updating visual elements and transforming categories such as home, beauty, electronics and video games.

Remodeled stores are lifting Target's total business, she continued.

"The performance of our remodeled stores continue to meet or exceed expectations in traffic, total sales performance and the amount of cross-shopping outside of food that across discretionary categories," she said. "In some cases today we are seeing guests splurging on higher-ticket items that are meaningful to them," - such as a Kindle wireless reading device, she noted.

At the same time customers are gravitating toward house brands like ‘up & up,' Tesija added.

As the back to college season starts to wrap up, Target's home business will be refreshed by September 5 when, for a limited time, the retailer launches its temporary "John Derian for Target Collection" for the home and office. The line will feature more than 100 home décor products and office accessories at prices under $25.

Target chairman, presdient and ceo Gregg Steinhafel noted that total home's results lately have been "mixed" and "certainly not" up to traditional company standards yet. But the efforts in place into the second half of this year are expected to help home move ahead positively."

Looking back at the second quarter, profits were up on a small sales increase.

Net earnings ended July 31 came in at $679 million for the quarter, compared with $594 million in the year ago period. And quarterly earnings per share increased 17.0% to 92 cents from 79 cents in the same 2009 period.

Retail sales in the quarter rose 3.8% to $15.1 billion, with a 1.7% increase in comparable-store sales. Retail segment earnings before interest expense and income taxes (EBIT) were $1.1 billion in the second quarter of 2010, up 3.1%.

Total revenues - including Target's credit card business, rose 3.1% to $15.5 billion.

"It clear the second quarter marked a change in a recent trend...following stronger results in the last two quarters, our sales trends have leveled off," Steinhafel said. "Recent results in our business and economy reinforce our perspective that the current recovery will be slow and inconsistent."

While shoppers are still cautious in their spending, he continued, "we are 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."

The store remodel program and modest real estate expansion plans are poised to help boost Target's performance going forward. Steinhafel offered more details, which includes the opening of 10 new stores in the third quarter.

"We plan to steadily build from this very light program in the next few years, adding 20 or more new locations in 2011, and more than 30 in 2012," he said. "While we have the appetite, the team and access to capital that would enable our new-store base to grow more quickly, we are steadfast on applying a return-spaced approach to approval of stores, and these growth expectations reflect our estimate of the number of projects that will meet our investment criteria in the current environment."

In the meantime, he said, Target is "pleased to invest productively in a re-fresh of our existing store base," incorporating the P-Fresh food layout along with improvements in home, beauty, electronics, video games and shoes.

Target completed another 116 remodels in the second quarter. So far, the retailer has remodeled more than 200 stores and currently has "well over" 300 P-Fresh stores operating across the country.

Also expected to boost store traffic and average transaction later this year is Target's new "Rewards" program in which shoppers will begin receiving 5% off whenever they use one of Target's credit cards or the Target debit card.


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