Target Corporation (TGT) recently posted better-than-expected sales results for the five-week period ended July 02, 2011.

The rise in comparable-store sales was well ahead of the street expectations, reflecting strong sales in the grocery category coupled with sales growth in health and beauty products and clothing basics.

The company’s comparable-store sales jumped 4.5% for June 2011, following an increase of 2.8% in May 2011, compared with a growth of 1.7% in June 2010.

Year-to-date comparable-store sales inched up 2.7% versus an increase of 2.3% in the prior-year period.

Category wise, grocery and apparel reported healthy sales. However, sales remained sluggish across home goods, movies and books.

Based in Minneapolis, Minnesota, Target announced that net retail sales for June rose 5.7% to $6,256 million from $5,918 million reported in the prior-year period.

Year-to-date, sales climbed 3.6% to $26,635 million.

Target’s strategic initiatives, such as the REDcard Rewards program and P-fresh in-store food and grocery sections, should help drive comparable-store sales and operating margins in the long term. We believe that increased focus on consumables will boost sales in a sluggish retail environment.

The company is also managing its costs effectively, resulting in margin improvement and bottom-line growth. Target now tends to focus more on store renovations while enhancing store sales productivity, introducing smaller format stores and opening stores in international markets. However, an unfavorable consumer spending pattern and increased competition remain matters of concern.

Target, which currently operates 1,755 stores in 49 states, faces stiff competition from Wal-Mart Stores Inc. (WMT). Currently, we have a long-term ‘Neutral’ rating on the stock. Moreover, Target holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.

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