Last week Target announced that it expects a modest increase in same-store sales and boosted its Q2 earnings forecast. If the trend holds, it will be the first quarterly gain in comp-store sales in more than a year. Particularly encouraging is the added announcement that second-quarter earnings are expected to come in above the high end of its previous forecast. The improvement in the business has been attributed to an increase in customer traffic and newly introduced merchandise - lines but generally it has been broad-based, with nothing in particular driving the gains.
Also, just when everyone thought Wal-Mart had become a sleeping giant, it has shown life again, and is preparing to take on Amazon head to head. Wal-Mart’s comparable sales have increased now for 11 consecutive quarters and most recently gained 1.4 percent in Q1. Additionally, comparable store traffic has increased 3 percent on a two-year stacked basis. In the meantime, its acquisition of Jet.com has upped its e-commerce game and brought in new talent to improve digital operations. It’s no coincidence that Q1 online sales rose a phenomenal 63 percent. The fact that comp store sales have increased in light of the online sales boom is quite noteworthy. If omnichannel retailing is the future, then its 4,200 store count should be a huge advantage over Amazon. It’s quite apparent that even Amazon recognizes the need for a brick-and-mortar presence by virtue of its 465-store acquisition of Whole Foods Market.
The Best Buy turnaround may not have been so pronounced had it not benefitted from recent bankruptcies such as Radio Shack and hhgregg, among others. At the same time the consumer-electronics industry as a whole is growing less than 3% a year as interest in big ticket items such as flat screen TVs has waned.
While Kohl’s has experienced declines in comp store sales for the past five quarters, it did indicate that profit growth in Q1 was attributed in part to increases in store traffic. In the first quarter this year, same-store sales were down 2.7% - not as bad as analysts had predicted. Kohl’s will be one of the more interesting retailers to keep an eye on during the balance of 2017 based on the recent upheaval among department stores on the whole. Its predominantly non-mall location strategy probably puts Kohl’s in a better position to turn its comp store sales trend around compared to chains like Macy’s, JC Penney, and Sears, which continue to be impacted by the loss of traffic as more mall-based chains close stores.
There are also a number of brick-and-mortar categories that have avoided any serious impact from the shift toward online retailing. Off-price retailers, dollar stores, auto supply, and cosmetics all continue to perform admirably in the face of an ever-growing digital world.
There may be a hint of hope that the scale is starting to balance itself. However, no one should declare that the skies are clearing – we may find we’re just in the eye of the hurricane!
Bob Sheehan, Vice President of Research
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