Warm weather, Jason Wu spark a 7% gain for Target

Article by: THOMAS LEE , Star Tribune
Updated: March 1, 2012 - 9:12 PM

Analysts say Target is on a two-month roll, but whether that momentum is sustainable is an open question.

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Laura Reimer looked over haircare products at the Edina Target store in 2010.

Photo: Glen Stubbe, Star Tribune

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The unseasonably warm weather has warmed Target Corp.'s registers.

The Minneapolis-based retailer said Thursday that sales at stores open for at least a year in February jumped a robust 7 percent, thanks to its Jason Wu collection and the throngs of people venturing outside to go shopping. Wall Street had expected a 5 percent gain.

"February sales were well above our expectations due to stronger-than-expected guest traffic combined with a solid increase in transaction size," CEO Gregg Steinhafel said in a recorded call. "We're very pleased with the pace of our sales since the holiday season."

For Target and its investors, the question is whether January, in which the retailer posted a 4.1 percent same-store sales gain, and February were anomalies or a sign of good things to come. The two months typically yield the smallest sales of the year.

With few exceptions, major retailers have benefited from the mild winter -- from luxury retailer Nordstrom Inc. (+10.2 percent) to lower-tier department store Ross Stores Inc. (+9 percent). Even long-suffering Gap Inc. reported a 4 percent same-store sales increase.

"The lack of snowstorms, especially in the Northeast, gave us better [consumer] traffic patterns," said Judith Russell, editor of the Robin Report, a newsletter that tracks the retail industry. "The warm weather got people in the mind to buy spring items."

Target also enjoyed a nice lift from its limited-edition Jason Wu collection, whose rollout went considerably smoother than last year's Missoni debut. Combined with its PFresh grocery format and 5 percent Redcard discount program, the Wu collection helped Target drive sales across all of its departments.

"Although the [Wu] collection had less [product] than Missoni, it created buzz and was a runaway success," David Strasser, a retail analyst with Janney Capital Markets, wrote in a research note.

Target said same-stores sales in food and household essentials, including health and beauty, increased in the low teens and mid-single digits respectively. Comparable sales in apparel and accessories grew slightly above 7 percent, led by double-digit growth in women's clothing, performance active wear and men's apparel.

Even the retailer's struggling hardlines segment, which includes electronics and entertainment, saw a small same-store sales increase, led by music, books and movies. Target's exclusive DVD edition of "Twilight: Breaking Dawn" and special re-release of Grammy-winning singer Adele's sophomore album certainly helped Target's cause.

But some analysts think Target's same-store sales momentum is not sustainable. Wal-Mart and J.C. Penney will likely try to win market share through discounting, a tactic Target has so far avoided.

Target's relatively weak holiday performance also gives analysts pause.

"Evidence of uneven execution remains," Christopher Horvers, an analyst with J.P. Morgan, wrote in a recent research note. "Should we believe the most important eight weeks of the year [holiday shopping] ... or two of the smallest months of the year [January and February] that have benefited significantly from weather?"

Even Steinhafel sought to temper expectations. Despite Target's strong performance in early 2012, the company still expects same-store sales for the first three months of the year to rise 4 percent, he said.

But Target is clearly on the upswing. Since October 2011, Target stock has jumped nearly 16 percent. On Thursday, Target shares rose 7 cents to close at $56.76.

Russell, of the Robin Report, said the economy will likely continue to improve, which will help all retailers.

"We really need a few months to see" if Target's sales gains are real, she said. "But I think [Target] is moving in the right direction."

Thomas Lee • 612-673-4113

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