Target Store Expansion Fails to Boost Net Sales

August 23, 2009

This article is included in these additional categories:

Retail & E-Commerce

According to, Target’s store openings cannot raise earnings enough to compensate for declining store sales. The discount retailer reported declining figures in several key financial areas, including net earnings, for Q2 2009 (ended August 1, 2009). However, the retailer said its lower net earnings still beat expectations.

Net Earnings Drop 6%, Beat Expectations

Target’s quarterly net earnings dropped 6.3%, from $634 million to $594 million. However, Target said second quarter earnings were stronger than expected due to operating margin of approximately 7.6% in its retail segment, and credit card segment performance in line with expectations. Average credit card receivables decreased $150 million, or 1.8%, and quarter-end receivables decreased $349 million, or 4%. Credit card profit declined 14.8%, from $74 million to $63 million.

Store Expansion Can’t Boost Net Sales This Time

As in Q1 2009, the addition of new stores helped Target’s net sales performance. However, where store expansion contributed to increased net sales in Q1, during Q2 Target said it helped reduce losses. Net sales declined 2.7%, from $15 billion to $14.6 billion. A comparable store sales decline of 6.2% contributed to the drop, though Target said new stores helped offset this impact. Target opened 23 new U.S. stores in July 2009 and was operating 71 more stores at the end of Q2 2009 than at the end of Q2 2008.

Categories Boost Gross Margin

Target credited gross margin rate improvements within categories, partially offset by the unfavorable mix impact of faster sales growth in non-discretionary lower margin rate categories, for boosting gross margin from 31.2% to 31.9%.

Notable Q2 Activity

In addition to opening 23 new stores, Target also rebranded its Target private label line of CPG and grocery products under the “up&up” banner. In addition, Target partnered with designer Dror Benshetrit to release a new exclusive limited-edition home goods collection, and with online fashion/popular culture site to cross-promote content and products. In addition, Target launched a major back-to-school promotional push including several exclusive selections and an online product finder tool.

Wal-Mart’s Advantage Slims

While Target’s chief rival Wal-Mart continued beating Target in overall performance during its Q2 2010 (ended July 31, 2009), Wal-Mart’s advantage was not as pronounced as during the retailer’s Q1 2010/2009. Wal-Mart’s U.S. net sales climbed 0.3%, from $63.9 billion to $64.2 billion, while U.S. same-store sales dropped 1.5% excluding fuel sales. U.S. operating income rose 5%, from $4.6 billion to $4.9 billion.

At quarter-end, Target operated 1,719 stores in 49 states.


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