The economic climate is still unstable, consumers remain wary
and competition remains tough. In this scenario,
) has to walk a tight rope, given the unprecedented events. The
company is persistently trying to keep itself afloat in this
sluggish economic environment through its P-fresh remodel program,
5% REDcard Rewards program, City Target stores and The Shops at
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 increased focus on consumable items should
boost sales and earnings in a soft 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.
In order to tap the urban markets where real estate remains a
constraint, Target plans to introduce smaller-format stores called
City Target, similar to its biggest rival,
Wal-Mart Stores Inc.
). The company informed that the new stores will vary in size from
60,000 to 100,000 square feet compared to its typical format of
125,000-180,000 square feet.
We believe that this approach will help the company augment its
sales. Target unveiled its first three smaller format stores in Los
Angeles, Seattle and Chicago, with plans to open two more similar
format stores, one each in Los Angeles and San Francisco.
The Need to Diversify
The 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 and
Costco Wholesale Corporation
), which are geographically diverse and more resourceful.
Target is eyeing opportunities in international markets, such as
Canada and Latin America. The company plans to open 125 to 135
stores in Canada by 2013 and 2014. We believe, store openings
outside the United States will definitely boost the company's top
and bottom lines and better its cash flow generation
The economy is still not out of the woods. 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.
The global credit markets have recently undergone a significant
disruption. This may create difficulties for companies to obtain
financing on reasonable terms, and may jeopardize the company's
future growth plans.
The above analysis supports our unbiased view on the stock, and
therefore, we advocate our long-term "Neutral" recommendation on
the stock. However, Target retains a Zacks #2 Rank that translates
into a short-term "Buy" rating and well defines the company's
relentless endeavors to keep itself on the growth trajectory.
COSTCO WHOLE CP (COST): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
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