Target Corporation (NYSE:TGT) stock sure looks good today — at least when you juxtapose it with Wal-Mart Stores, Inc. (NYSE:WMT), Target’s largest brick-and-mortar rival. Just a day after WMT stock plunged on earnings and revenue misses, TGT stock beat on both earnings and revenue.
The upbeat Target earnings should continue to boost the TGT stock price, which was already up 33% in the past year. That’s been good enough to beat the S&P 500’s return by nearly 20 percentage points.
Walmart stock, for its part, is more or less breakeven over that time.
With today’s news, TGT solidifies its position as the best large-cap retail stock to buy now.
Cost-Cutting, Product Revamp & Online Sales Drive Growth
TGT stock posted adjusted earnings per share of $1.10 in the first quarter, jumping nearly 20% year-over-year and easily topping consensus expectations for $1.03 per share. Revenue also topped expectations, clocking in at $17.12 billion against calls for $17.08 billion.
To top it all off, TGT increased its full-year EPS guidance to the $4.50 to $4.65 range from the $4.45 to $4.65 range.
The results underline the nice recovery Target stock is making under CEO Brian Cornell, who took the reins of the Minneapolis-based retailer less than 10 months ago. In March, Cornell announced a two-year, $2 billion cost-cutting plan; it began with layoffs of 1,700 workers and will see the reduction of another 1,400 open positions.
TGT stock is also reaping benefits from a successful shift in its product mix, as a redoubled focus on fashion proves successful in the early going. The first-quarter Target earnings release details how “comparable sales in signature categories (Style, Baby, Kids and Wellness) grew more than double the company average.”
Sales in its digital channel soared as well, jumping 37.8%. More importantly, TGT continues to invest in new technologies on the cutting edge of e-commerce, acknowledging a growing need to buffer itself against the web dominance of Amazon.com, Inc. (NASDAQ:AMZN).
Last year, Target invested in an start-up called Cosmic Cart, which connects bloggers, retailers and readers by offering a universal shopping cart for the web. Browsing a blog and see an outfit you like? Cosmic Cart allows you to buy or add it to your cart right then and there, without hunting the web for it first.
Cosmic Cart isn’t huge yet, but with an early increase of 25% in conversion rates for apparel and accessories, the young company’s potential is exciting.
Walmart, on the other hand, is not, and that’s became much more clear after subpar first-quarter results yesterday. WMT stock missed on both EPS and revenue, but another metric was far more concerning, writes InvestorPlace‘s Dan Burrows:
“Most damaging, U.S. same-store sales — or sales at stores open at least a year — missed the Street’s target, rising 1.1% against projections of a 1.5% gain. Domestic same-store sales are an important indicator of a retailer’s health and do not suffer from the effects of foreign exchange.”
Target grew same-store sales at more than double the pace of WMT last quarter, as same-store sales grew by 2.3%. With cost-cutting, an intelligent refocusing of its product line and a finger on the pulse of innovative players in e-commerce, TGT stock looks like a steal.
As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
