The retailer's reputation as an overachiever is in jeopardy as it prepares to report sales.
Two months of back-to-back sales adjustments have unsettled investors. In September, Minneapolis-based Target scaled back its original projections of a 4 to 6 percent same-store sales increase to 1.5 to 2.5 percent. Actual sales came in up 1.2 percent.
Target has tried to dampen expectations for October sales, which will be released Thursday. Instead of a gain of 3 to 5 percent, Target is now calling for 2 to 4 percent.
Monthly sales figures, a key indicator of a retailer's health, are important in establishing momentum heading into the crucial holiday season, retail experts say. That's particularly true for Target this year.
Target's unique positioning as the high-end discounter traditionally has left it somewhat immune from the economic woes of other retailers. The company has outpaced its bigger rival Wal-Mart in sales gains for 12 consecutive quarters. Analysts have pointed to Target's younger and better-heeled customer base as a key reason.
But Target, like other retailers, is facing strong consumer headwinds brought on by rising food and gas prices, record levels of debt and the worst housing market since the early 1990s. Retailers across the board are expected to post lukewarm October sales of about 2 percent, according to a report issued Tuesday by the International Council of Shopping Centers, which calculates the same-store sales figures.
"If Target comes in at the high end, the confidence will be back," said Stan Pohmer, a Twin Cities retail analyst and former buyer at Target. "If they come in at the low end of the range or miss it, then there's definitely going to be a problem. The market will react negatively to it."
A growing number of investors are expecting that negative reaction. Target stock has its highest level of short interest -- meaning investors expecting the stock to fall -- in more than a decade. As of Oct. 15, Target's short interest ratio was equal to 5.73 days of average trading volume. For the year, Target has averaged 3.7 this year, compared with Wal-Mart's 2.3.
Like other retailers, including Wal-Mart, Kohl's, J.C. Penney and Macy's, the stock is already down. It closed Tuesday at $58.94, up $1.03, but down significantly from $70.14 in mid-July.
Feet in the door
To try to jump-start sales, retailers such as Wal-Mart, Toys 'R' Us and Circuit City have come out earlier than ever with deep discounts and heavy promotions on holiday items. But Target, the nation's second-largest discount retailer, has taken a more measured approach. It only recently began offering free shipping on certain items ordered online and waited until last weekend to launch a meaty holiday toys circular.
Howard Davidowitz, head of a New York retail investment banking and consulting firm, believes Target "has not been aggressive enough" in reacting to discounting by its competitors.
"No matter who you are in retailing, you've got to get footsteps in the store," he said. "If Target starts losing footsteps, that's a problem."
Target spokeswoman Lena Michaud said the company's marketing activities will build throughout the holiday season, as in previous years.
"People are used to Target delivering the unexpected," Michaud said in an e-mail, "and this year is no different."
But several analysts are worried about Target's ability to increase store traffic. The combination of warm weather and widening economic concerns have "cast a dark cloud over consumer spending" in October, wrote Peter Benedict, an analyst at Wachovia Capital Markets in New York, in a recent report.
On Thursday, Wayne Hood of BMO Capital Markets in Atlanta lowered his rating of Target stock to "underperform."