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Target Corporation ( TGT - Analyst Report ) continues with its positive sales rhythm so far in 2012, and we believe it will sustain the same tempo for the balance of the year. The company’s relentless endeavors to keep itself on the growth trajectory have paid off in an economy, which is looking for ways to shield itself from a financial turmoil that seems to have no end.
Riding on Positive Comps
During the period from January to May, 2012, Target has consistently registered comparable-store sales growth. In that period, comps growth touched a low of 1.1% and hit a high of 7.3%, thereby recording an average growth of approximately 4.8%. In the first five months of 2012, comps increased 4.3% in January, 7% in February, 7.3% in March, 1.1% in April and 4.4% in May.
Given the sluggish economic recovery, monthly sales data for Target also portrays a decent performance. Within January to May 2012, the company registered a minimum sales growth of 2.1% and a maximum growth of 8%, reflecting an average growth of approximately 5.6% for the period. It registered sales growth of 5.1% in January, 8% in February, 7.9% in March, 2.1% in April and 5% in May.
Target is persistently trying every means to keep afloat in this sluggish economic environment. The company’s P-fresh remodel program, 5% REDcard Rewards program, City Target stores, The Shops at Target initiatives and its foray into the foreign market are its arsenal to safeguard itself from any unprecedented events.
Target’s efficient marketing, multi-channel strategy, product innovation, compelling pricing strategy, and new merchandise assortments should 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. The company’s long-term objective is to attain $100 billion or more in sales and $8.00 or more in earnings per share by 2017.
The economy has not yet recovered fully. It is evident that the company’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 affect their discretionary spending, and in turn curtail the company’s growth and profitability.
Moreover, a greater concentration of the company’s revenue generating capabilities in limited regions of the United States poses a competitive threat to Target, compared with Wal-Mart Stores Inc. ( WMT - Analyst Report ) and Costco Wholesale Corporation ( COST - Analyst Report ) , which are geographically diverse and more resourceful.
Consequently, Target is focusing more on store renovations and improving store sales productivity. Further, with the ever changing consumer preferences, the company feels the need to adapt to the demands of time and consider consumer-oriented strategies.
Currently, we maintain our long-term “Neutral” recommendation on the stock. Moreover, Target retains a Zacks #3 Rank that translates into a short-term “Hold” rating.
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