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3 Things You Ought to Know Apart from Target’s Upbeat View

Zacks

Target Corporation TGT, which is trying all means to rapidly adapt to the changes in the retail ecosystem, gave investors a reason to smile. This general merchandise retailer now expects to post positive comparable sales for the first time in five quarters and envisions earnings per share to top the upper end of its guidance range of 95 cents to $1.15, when it reports second-quarter fiscal 2017 results on Aug 16.

Improved sales and traffic trends witnessed during the first two months of the second quarter, prompted management to lift its forecast, which otherwise had earlier projected low-single digit decline in comparable sales. We noted that comparable sales had decreased 1.3% in the first quarter of fiscal 2017, following declines of 1.5%, 0.2% and 1.1% in the fourth, third and second quarters of fiscal 2016.

Target’s encouraging outlook was enough to propel the shares that increased 4.8% yesterday. However, of late the stock came under pressure following the news of Whole Foods Market, Inc.’s WFM buyout by Amazon.com Inc. AMZN. We notice that in the past one month the stock has decreased 3.9% compared with the Zacks categorized Retail-Discount & Variety industry’s decline of roughly 9.9%.


What Else Should You Know?

The retail landscape has been witnessing a sea change with the focus gradually shifting to online shopping. Nevertheless, retailers are focusing more on enhancing omni-channel capabilities, optimizing store fleet and restructuring activities, and Target is no exception.

Focus on Omni-channel & Merchandise Assortments

We believe that Target’s initiatives such as the development of omni-channel capacities, diversification and localization of assortments bode well. The company intends to deploy resources to significantly develop its online platform as well as store facilities to make shopping more convenient for customers.

The company plans to expand its merchandise assortments with special emphasis on Style, Baby, Kids, and Wellness categories that are performing well. Moreover, management is keen on expanding the Food category. Target has also adopted an aggressive cost reduction strategy, including rationalization of supply chain, technology and process improvements.

Introducing News Brands & Restock Program

Target intends to launch 12 new brands across its signature categories by the end of next year. This year in May, the company launched Cloud Island, an exclusive baby brand and plans to introduce four more exclusive brands across Home and Apparel in coming months. The company also rolled out Target Restock program in Minnesota that allows customers to restock their shipping box with essential items online and get them delivered at door steps by the next business day for a nominal charge. Target’s move is being viewed as an effort to compete with Amazon's Prime Pantry.

Flexible Format Stores

Target continues to lay emphasis on developing flexible format stores to penetrate deeper into urban areas. The company plans to open 30 small format stores in fiscal 2017 and approximately 40 stores a year by fiscal 2019. During the first quarter of fiscal 2017, the company remodeled 21 existing stores and opened four new small format locations. It remains on track to complete the remodeling of 100 existing stores in fiscal 2017.

Bottom Line

Target is leaving no stone unturned when it comes to wooing customers. The stock currently sports a Zacks Rank #1 (Strong Buy). Another top-ranked stock in the space is Burlington Stores, Inc. BURL. The stock has a long-term earnings growth rate of 15.9% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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