Accelerating comps drive Target performance
MINNEAPOLIS — Target reported second-quarter earnings per share of $1.03 that beat analysts’ estimates by a nickel, and the company elevated its full-year profit forecast amid ongoing success of key initiatives.
Retail sales increased 5.1% to $15.9 billion from $15.1 billion, thanks to a 3.9% same-store sales increase and the addition of several new stores. Operating profit for the retail business increased at a slower rate, rising 4.6% to about $1.15 billion from nearly $1.1 billion.
Operating profits in the company’s credit card segment grew nearly 15% to $171 million from $149 million in the prior year, despite revenues that declined to $345 million from $406 million, as Target incurred just $15 million in bad debt expense, compared with $138 million the prior year.
“We’re very pleased with our second-quarter financial results, which benefited from acceleration in the pace of our comparable-store sales growth,” Target chairman, president and CEO Gregg Steinhafel said. “We continue to focus on strong execution of our strategy, preparing Target to perform well in a variety of economic environments.”
Second-quarter EPS of $1.03 were nearly 12% higher than the prior year’s 92 cents per share, while net income grew 3.7% to $704 million. Earnings per share grew at a faster rate due to an aggressive share repurchase program, which reduced the number of outstanding shares. The company said it spent $688 million during the second quarter to buy back 14.3 million shares at an average price of $48.11. At the midpoint of the year, the company has spent roughly $1.5 billion to buyback 29.7 million shares.
A third-quarter profit forecast of 70 cents to 75 cents encompassed analysts’ consensus estimate of 71 cents, however, the full-year outlook the company provided of $4.15 to $4.30 was higher that the $4.12 analysts envisioned.
One negative data point in the second-quarter results was the gross margin impact of some of the company’s key initiatives. The ongoing rollout of the PFresh format, with its expanded assortment of food and consumables, has a higher percentage of Target’s sales coming from lower margin goods. In addition, Target’s product assortment in these categories is competitively priced with Walmart. What’s more, gross margin pressure is compounded by the increased penetration rate of shoppers participating in the REDcard Rewards loyalty program, which deducts 5% from the purchase price at checkout. As a result, the gross margin rate declined to 31.6% in the second quarter from 32% the prior year and further declines are expected as the PFresh rollout continues and more customers participate in the 5% discount program.
Offsetting the lower margins, the company improved its expense control with selling, general and administrative expenses declining to 21.3% of sales, compared with 21.5% of sales.
Albertsons LLC names VP pharmacy operations
BOISE — Privately owned Albertsons LLC, which operates more than 200 pharmacies across six states, has named Stewart Edington VP pharmacy operations.
Edington has been with Albertsons stores since 2003, when he was hired as a pharmacy manager and worked in the company’s Phoenix stores. In 2006, Edington joined Albertsons LLC as the division pharmacy manager for the company’s Florida stores, a position he has held for the last five years.
Prior to working for Albertsons, Edington gained substantial pharmacy operations experience in his native South Africa in establishing and running four independent pharmacies over a seven-year period, and also was a health clinic manager for two years at a rural clinic.
BJ’s beats expectations
WESTBOROUGH, Mass. — Strong performances in key categories and higher gas profitability helped BJ’s Wholesale Club exceed its earnings guidance for the second quarter.
The company reported net income for the period ended July 30 of $45.7 million, or 84 cents per diluted share. The company’s guidance called for net income in the range of $40.5 to $42.5 million and earnings in the range of 74 cents to 78 cents per diluted share. For second quarter 2010, BJ’s reported net income of $35.8 million, or 67 cents per diluted share.
As previously reported, BJ’s net sales for second quarter 2011 increased by 11% to $2.98 billion and comparable-club sales increased by 7.8%, including a contribution from sales of gasoline of 4%. Excluding the impact of gasoline, merchandise comparable-club sales increased by 3.8%.
BJ’s president and CEO Laura Sen said, “BJ’s outperformance of 10%, versus our guidance reflected favorable merchandise margins, higher gas profitability and expense savings that exceeded plan. We are very excited about our positive sales momentum for the second quarter and first half of 2011. It is clear that our members are doing more of their weekly food shopping with us. And I believe that we have tremendous opportunities to further grow our business.”
BJ’s said that, excluding the impact of gasoline, member traffic was flat, following a 4% increase in last year’s second quarter. The average transaction amount increased by approximately 3%, following a 1% decline in last year’s second quarter.
Food continues to be a strong category for BJ’s. Sales of food increased by approximately 5% for the second year in a row, driven primarily by an 8% increase in perishable foods, the company reported. On a two-year stacked basis, comparable-club sales of perishable foods increased by approximately 16%. General merchandise sales increased by approximately 1% for the second quarter, following a slight decrease in last year’s second quarter.
BJ’s reported that its strongest comps performances came from beauty care, computer equipment, coffee, cookies, dairy, deli, lawn and garden, meat, prepared foods, produce, salty snacks and summer seasonal. Departments with weaker sales versus last year included books, televisions, toys and video games.