Target (NYSE: TGT) has been tagged as the “cheap chic” discount-retailer, due largely to its status as the go-to store for consumers seeking stylish goods at reasonably low prices. The company’s mix of fashionable clothes and deep discounts has made Target shares a profitable fit for retail investors. The stock has been particularly strong over the past year, with TGT shares climbing about 24% in the past 12 months. But in recent months the stock has slid along with the rest of the general market. So, are Target shares missing the mark, or will the company get back to hitting the bullseye? Here are five reasons why TGT shares will stay on target.
Target Posts Strong Earnings. On May 19, the Minneapolis-based firm posted fiscal first-quarter earnings that revealed a big 29% increase in net income. The company earned $671 million, or 90 cents per share, for the period ended May 1. That’s well above the $522 million, or 69 cents per share, the retailer earned in the first quarter of 2009. The Street was expecting earnings of just 86 cents a share. Revenue in the quarter also impressed, coming in at $15.59 billion, a 5% year-over-year increase. The company is slated to report fiscal second-quarter earnings on Aug. 18, and if the results are anything like Q1, look for buyers to step into the stock.
Strong Target Sales and Credit Card Gains. Target’s first-quarter gains were largely due to gains in the all-important same-store sales metric. Sales at stores open at least a year jumped 2.8%. Looking forward, the company expects to post a same-store sales increase of anywhere from 2% to 4% percent in the current quarter. Target also saw strong gains in its credit card business division. Although credit card revenue fell 7.8%, profit in the segment surged to $111 million, nearly tripling the number from the same quarter last year.
TGT Stock Blows Out Competitors. Target’s recent quarterly beat stands in clear contrast to rival discounter Walmart (NYSE: WMT). The world’s largest retailer recently reported a much smaller year-over-year percentage profit increase than Target. And unlike Target, Walmart’s same-store sales metric actually was down 1.1% for the quarter. The decline was far greater than the 0.6% decline analysts were expecting.
TGT Stock Crushes Rivals in 2010
. It’s been a wild year for stocks in general, and the retail sector hasn’t been spared. Yet despite the volatility in 2010, Target shares have handily outperformed the competition. Year-to-date performance for TGT shares as of July 26 was a gain of 9.26%. Contrast that with a 2.58% decline for the performance of broadline retailers as group. As for chief rivals Walmart and Costco (NASDAQ: COST), TGT trounces both. WMT shares are down 4.34% so far in 2010, while COST shares have dropped 5.85%.
The Target Vanity Factor. Perhaps the one intangible in Target’s favor is the “vanity” factor. Sure, when the worst of the recession was here, shoppers shed image and just went for the lower prices offered by Walmart, Costco and other discounters. Now that the worse of the recessionary pain is over, people have regained their vanity and now have returned to being much more image conscious. As one Wall Street Journal message board writer recently put it, “Target is a nice place to go. Walmart may have good prices but I would rather tell my friends I came back from shopping at Target.”
