Investors Should Expect More Growth from Target Stock

Target-logoRetail these days is a curious industry. A generation ago, a collection of national department stores competed for the bulk of the business, and while fortunes shifted from year to year, it was comparatively simple to see which retailer was leading the pack.
Not so today, when many national chains have a diminished presence and discount chains such as Target (NYSE:TGT) and Wal-Mart (NYSE: WMT) dominate offline sales. And even though the majority of sales continue to take place in brick-and-mortar stores, online retailers from (NASDAQ: AMZN) all the way down to niche players represent a major force to be reckoned with.
In this increasingly fragmented environment, Target has consistently been recognized as one of the nation’s top retailers, and it’s steadily built its online presence. But however you measure it, Target has clearly stumbled in recent years as it abandoned a plan to expand into Canada and suffered a major security breach in which 40 million credit card numbers were stolen during the 2013 holiday season.

Target’s Resiliency

Last week, Target showed that it’s resilient – and that its customers are forgiving. The discount chain reported growth in both first-quarter revenue and net income, and beat analyst forecasts on both fronts.
Now, if you look at just the top and bottom line numbers you’ll see a level of growth that might seem humdrum. Revenue rose to $17.1 billion from $16.7 billion, compared with a consensus analyst estimate of $17.08 billion. Net income rose to $1.10 per share, compared with 92 cents in the year-ago quarter and analyst forecasts for $1.03.
But between those two numbers, Target also showed that it’s successfully building an online presence while competing well against rival Wal-Mart. Target’s online sales grew by a stunning 40%. Its same-store sales were up 2.3%, compared to 1.1% growth for Wal-Mart’s same-store sales in the first quarter. And while Target showed strong earnings growth, Wal-Mart’s net income fell 7% in the first quarter to $3.34 billion.

Savvy Promotions

And it’s not just the numbers that bode well for Target stock. You may have heard about Target’s limited edition Lilly Pulitzer promotion earlier this year that pretty much flew off the shelves (and almost crashed the retailer’s website) when shoppers raced to pick up the colorful apparel and accessories.
It’s this sort of promotion that can help retailers distinguish themselves and gain not only revenue, but recognition and respect. Target is planning future designer promotions, and if they go half as well as the Lilly Pulitzer event, they will reinforce Target’s standing as a top retail destination.
There may be no other retail chain that you can compare apples-to-apples to Target. But Target’s position as a major (but not massive) national chain with a strong online presence and superb merchandising puts it in a sweet spot with room to grow.
Last week Target boosted its guidance for full-year earnings per share to a range of $4.50 to $4.65 from a prior forecast of $4.45 to $4.65. As long as it can avoid another data breach, the future looks bright for Target stock.

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