Target Food Performing Well in Remodeled Stores

MARK HAMSTRA

MINNEAPOLIS — Target Corp. here last week said profits were up in the fiscal first quarter on strong performance in the credit-card division, although the soft economy and weakness in seasonal merchandise sales crimped retail sales growth.

Retail comparable-store sales rose 2%, as previously reported. The company said adverse weather might also have contributed to the sales weakness.

“Guests were cautious in their behavior as they faced continued economic headwinds, including near record-high prices at the gas pump,” said Gregg Steinhafel, chairman, president and chief executive officer, Target. “As a result, food and commodity categories performed well, while we experienced less consistent patterns, including some sales declines, in the rest of the store.”

The company's P-fresh remodels, which include more extensive grocery offerings in its traditional discount stores, are still driving “meaningful increases in traffic and sales,” he said, noting that traffic is up 6% in stores a year after remodels are completed.

The company now has 550 P-fresh remodels completed and 300 more slated for completion by the end of October.

Adhering to its tradition of working with designers to offer exclusive merchandise in other departments, Target also said it had rolled out two new flavors of Ben & Jerry's ice cream in April: Volun-Tiramisu and Peanut Butter World.

“These whimsical flavors support Target's partnership with Ben & Jerry's in support of volunteerism by encouraging guests to visit volunteermatch.org after they have enjoyed one of these summer treats,” explained Kathryn A Tesija, executive vice president of merchandising, Target.

She also noted that the economy was having a noticeable impact on consumer shopping patterns.

“Guests are shopping closer to the moment of need, waiting until the last minute to come out and cautiously spend,” she said. “We saw this pattern in April as holiday-sensitive categories like candy, toys, entertainment and kids' apparel experienced a notable surge in the two weeks before Easter.”

Douglas Scovanner, executive vice president and chief financial officer, noted that Target's “core” business — defined by an analyst as that not influenced by the P-fresh remodels and the company's 5% Rewards program — was actually “slightly negative” in the first quarter, relative to a year ago. P-fresh remodels and the 5% Rewards program each drove more than 1% of same-store sales growth in the quarter, he explained, driving the 2% growth for the period.

“We're cycling against a core figure that was the strongest quarter last year by some measure,” Scovanner added. “We do not expect the core by that definition to remain in negative territory for the balance of the year.”

The company also said that despite a skew toward lower-margin food items in the P-fresh remodels, the company's profitability in the categories has been “right in line with original expectations.”

Net income in the quarter, which ended April 30, was up 2.7%, to $689 million, on a 2.8% increase in revenues, to $15.9 billion.