Target (TGT)

Target faces strong competition from Wal-Mart Stores (WMT), a retail giant with more than three times Target's market share. Due to Wal-Mart's size, Target cannot effectively compete in a price war, and should avoid that possibility.

Target (TGT) today reported that its net retail sales for the four weeks ended August 2, 2008 increased 4.7 percent to $4,566 million from $4,363 million for the four weeks ended August 4, 2007. On this same basis, July comparable store sales declined 1.2 percent.

“Our comparable store sales performance in July was near the low end of our -1% to +1% planned range,” said Gregg Steinhafel, president and chief executive officer of Target Corporation.

Uh, Greg. Let's do a little basic math here. -1.2% is actually "greater than" -1.0% remember this little sign, -1.2 > 1.0? I think it was from "Intro to Algebra"? It is not "near the low end" Greg, it is officially "past it".

Analysts expected a decline of -.4% once again proving the fruitlessness is listening to them. The news here is not that Target missed analysts expectations just as it was not in the case of Wal-Mart. The point here is that Target missed their own expectations meaning things for them are even worse than they thought they were. Perhaps the worse news is that their CEO does not seem to realize they missed it.

Year to date, Target comp sales are down .6% vs a 4.6% rise at this time last year. That, is not good no mater what the expectations.

All of Target's sales and operations are concentrated in the United States, with no international exposure. This means that Target can be hit hard if the U.S. economy faces a downturn; Target lacks the overseas buffer that its competitors Wal-Mart and Costco Wholesale (COST) both have.

Target (TGT) reported 2nd quarter earnings before the open this morning and what really caught my attention was the detioration in their credit card portfolio (TGT Earnings Release).

Target, a $40 billion market cap company, has its own credit card on which it has $8 billion in receivables. The quality of that portfolio has been deteriorating the last few quarters, resulting in a $139 million decrease in earnings in the segment in the current quarter compared to a year ago.

60+ day and 90+ day delinquent accounts increased to 4.5% and 3.1% compared to 4.2% and 2.9% a quarter ago and 3.5% and 2.3% a year ago. Annualized net write offs, receivables they give up on collecting and remove from their balance sheet as assets, increased to 8.7% compared to 7.6% a quarter ago and 5.4% a year ago.

If net write offs increase to 12% over the next year, that could mean an additional $300 million hit to net income, which represents about 10% of their net income over the last 4 quarters.

More broadly, this is just another indication of the distress consumers are experiencing.

Target's growth may be slowing down, due to the expansion of other general retailers into the discount designer goods market. Target attracts the majority of its customers with its reputation for "trendy chic" products. With other retailers now beginning to copy Target's business strategy, Target will find it harder to maintain its growth rate.