- Target's Q4 fiscal 2012 results reflected slow growth
- Comparable sales were up just 0.4% due to the weak holiday
season, unsuccessful Neiman Marcus collection and low
- Revenues increased by 7% mainly due to strong growth in the
- The retailer can do better in the future with REDcard &
pharmacy rewards, exclusive partnerships and expansion in
- However, the sluggish U.S. economy, payroll tax increase
and profit sharing with TD bank might create hurdles for
) recently reported Q4 fiscal 2012 results reflected slow growth.
The comparable store sales increased by just 0.4% due to lower than
expected store traffic, unsuccessful Neiman Marcus collection and
the weak holiday season in the U.S. However, some positive trends
exist that can help the retailer do better in the future.
Target's REDcard and pharmacy program helped it register an
increase of 1.4% in the average transaction amount. The retailer's
overall revenues increased by 7% due to strong growth in its online
sales. Target is entering new exclusive partnerships to attract
customers, which has been one of its key selling points. Moreover,
CityTarget stores continued performing well even during the weak
holiday season, and the retailer is all set to open its first store
in Canada in April 2013. However, sluggish growth in the U.S.
economy, payroll tax increase and Target's profit sharing with
Toronto Dominion bank (for its credit card division) might create
See our complete analysis for Target
Reasons Why Fourth Quarter Remained Slow
The U.S. witnessed its worst holiday season since the recession
of 2008 due to fiscal cliff concerns and hurricane sandy.
Furthermore, due to the sluggish economy and payroll tax increase,
U.S. buyers remained cautious regarding their spending. This
troubled a number of retailers including Target. The retailer
reported a decline of 1% in its store traffic for Q4 fiscal 2012.
Moreover, its exclusive partnership with high-end retailer Neiman
Marcus did not yield the desired results and prompted it to
offer heavy discounts even before Christmas. Target slashed the
prices by as much as 75%, which was reflected in its comparable
store sales growth for December (0%).
Why We Think Target Can Do Better Going Forward
Although Target had a weak Q4 fiscal 2012, we believe that its
growth can pick up in the future due to the following factors.
REDcard & Pharmacy Rewards:
Target's REDcard reward program still remains a valuable driver of
its store traffic. The company has stated that its REDcard
customers tend to visit twice as often as its regular customers and
spend about 50% more. REDcard penetration increased by about 3% in
fiscal 2012, and has nearly tripled in the last two years. The
retailer's 5% reward loyalty program allows customers to save money
when they shop at Target stores using its brand credit card
Target's relatively new loyalty program (pharmacy rewards) has also
been successful. Pharmacy guests have shopped at Target stores
about three times more often and spent 50% more than the
non-pharmacy guests. In this program, customers gets 5% off on
shopping after filling five eligible prescriptions. As this
gains popularity with Target's customers, we expect an increase in
the number of sign-ups, and subsequently higher sales.
Strong Growth In Online Sales:
According to Target's management
its mobile and online sales grew faster than the industry average.
To achieve this, Target has been investing in mobile and website
technologies. As a part of this initiative, the retailer recently
installed free Wi-Fi in its stores to allow access to its
e-commerce. As a member of MCX (Merchant Customer Exchange), Target
is involved in developing better mobile payment solutions, which
should help its mobile channel. Moreover, the broader trend of
increasing popularity of online retail channel is likely to aid
New & Existing Exclusive Partnerships:
Target's continued partnership with popular designer
has received good customer response despite the weak holiday
season. The designer's collection offers handbags,
ready-to-wear, jewelry and shoes at affordable
prices. Recently, Target partnered with actor
to offer exclusive version of his release "
The 20/20 Experience
". Target will also be collaborating with famous designer
to create a limited edition collection of women's
apparel, accessories and shoes for the spring season.
Such partnerships have helped the retailer drive store traffic in
the past. The trend is likely to continue as Target expands and
renews such partnerships.
Canadian Expansion & CityTarget:-
Target is set to open its first 24 stores in Canada by the end of
March and will add 100 more by Christmas. The retailer expects
to generate substantial revenues from the region in the future. It
has been a common practice for many U.S. retailers to expand to
Canada, and such expansions have been successful. In addition to
this, Target's smaller format stores, CityTarget continued to
deliver robust sales even during the weak holiday season. The
retailer plans to add three more stores in 2013. However, over the
course of time, these stores are likely to become an integral part
of Target's business.
Our price estimate for Target stands at $60
, which is slightly less than the market price.
How a Company's Products Impact its Stock Price at