Target Corporation’s (TGT) efficient marketing, multi-channel strategy, product innovation, compelling pricing strategy and new merchandise assortments, should help drive comparable-store sales and operating margins in the long term. We expect the company to gain market share, and believe that more focus on consumable items should boost sales and earnings in a sluggish consumer environment.
Going forward the company will focus more on store renovations and improving store sales productivity. Target in fiscal 2011 plans to remodel nearly 380 stores, which include an expanded grocery offering, improved store layout, and enhancement of in-store shopping experience across departments, such as, beauty, home, electronics and video games, aimed at increasing traffic. Moreover, by the end of 2011, Target plans to introduce P-fresh in-store food and grocery sections in approximately 850 discount stores.
Target, similar to that of its biggest rival Wal-Mart Stores Inc. (WMT), plans to introduce a smaller store format of 60,000 to 100,000 square feet compared to the current format of 125,000 to 180,000 square feet, to tap the urban markets, where real estate remains a constraint.
Target, will unveil its first smaller format store of about 90,000 square feet in Seattle in 2012, with plans of opening similar format stores in 10 U.S. cities, including Chicago, Los Angeles, San Francisco, Boston, Baltimore and Miami.
Another opportunity, which Target is eyeing, is the opening of stores in international markets, such as Canada and Latin America. The company plans to open 100 to 150 stores in Canada by 2013 and 2014 as a result of acquisition of leasehold interest in Zellers’ stores. We believe the opening of stores outside the United States will definitely boost the company’s top and bottom lines and improve its cash flow generation capability.
Target’s Chief Financial Officer Douglas Scovanner aims to generate approximately C$6 billion (or $6.27 billion in U.S. dollars) in sales by 2017 through its store expansion in Canada – Dow Jones Newswire reported.
The company also expects to open more than 200 stores in Canada over a period of 5 to 10 years. Management believes that all these initiatives would help the company to exceed $100 billion in total sales by 2017, and would result in earnings of more than $8.00 per share. Target had posted revenues of $66 billion in fiscal 2010.
However, Target’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability.
Moreover, Target in the retail segment faces stiff competition from discount stores, department stores, drug stores, specialty stores, supermarkets, wholesale clubs and other forms of retail commerce on attributes such as location, price and quality of merchandise, in-stock consistency, merchandise assortments and customer service. This may weigh upon the company’s results.
Given the pros and cons we maintain our long-term ‘Neutral’ recommendation on the stock. Moreover, Target, which currently operates 1,755 stores, holds a Zacks #3 Rank, which translates into a short-term Hold rating, and correlates with our long-term view.
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
Zacks Investment Research
