Target's Sales Update May Be Scary

 | Oct 30, 2013 | 8:44 AM EDT
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Unlike Wal-Mart (WMT), Target (TGT) may actually share a sales update at its analyst day today.

The question is how bad will it be? Expectations are for the company to lower guidance (short-term and possibly even long-term targets).

Target continued to give us the bad news last quarter. Traffic declines accelerated, sales results were light and sales guidance for Q3 also missed the mark. But maybe the biggest yikes-moment came from estimates for dilution from Canada that increased 80%. The yellow brick road to profitability across the border is a lot longer than the Street was assuming.

Same-store sales guidance of 1-2% for the current quarter may not be low enough, given that it compares to 2.9% in the year-ago period. While a sales disappointment is expected, any further Canada pessimism might be the real problem.

Finally, we expect to hear more about pricing strategies today and not just in Canada, where the consumer is responding with disappointment early on in the rollout. Target has largely stood on the sidelines when it comes to Black Friday promotional wars in favor of maintaining gross margins. That is a nice idea, but in the current environment promotions rule. Look for Target to tell us how they are going to get back in the game.

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