This Retailer Promises a Good Holiday Shopping

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The general merchandise and food discount store operator Target (NYSE: TGT) reported its third quarter earnings on Thursday. Target’s earnings per share and revenues exceed estimates. The company’s recent investment in customer’s loyalty, substantial entrance in Canada, and increased domestic sales has helped improve revenues.

Numbers

Net income rose by 14.8% to $637 million compared to $555 million in the same quarter a year earlier. Revenues for the current quarter are reported at $16.93 billion, improved by 3.2%, compared to $16.40 billion last year. Revenues have increased in the last four quarters, while net income has been improving for the last five quarters.

Wal-Mart (NYSE: WMT) has also reported its earnings on the Nov. 15 with revenue climbing by 3.4% to $113.9 billion (including membership and other income). Net sales improved by 3.60% to $66.1 billion after considering the impact of fuel sales. Cost savings and revenue growth have both boosted Wal-Mart's shares.

What Separates Target From Peers

Target’s conversion of many of its stores to PFresh has increased customer spending, and the company's credit card offering of a 5% discount to customers has helped in improving sales. The company is trying to improve its customer’s online shopping experience and has introduced many easy to use mobile apps that should generate growth through the mobile channel. Free Wi-Fi access in stores enables shoppers to research the products and derive value from their shopping.

The company’s Canadian segment has performed very well, and its first few Canadian Stores should start on time and within budget. Target’s announcement last month that REDcard holders will receive an extra 30 days return on purchase in addition to a saving of 5% on every purchase in stores and at target.com looks to be an innovative business strategy. The response at City Target stores is overwhelming and with the addition of new stores it is expected that the retailer will prosper more. The company has been continuously looking to find opportunities to reduce its inventory investment by improving supply chain efficiencies, which seem to have started providing results.

Are Wal-Mart and Target Similar

Wal-Mart and Target are competitors, but their customer base is totally different. Target caters to more affluent shoppers that have a median household income of $64,000 a year, while Wal-Mart aims for customers with an income range of $30,000 - $60,000 per annum. The merchandise that Wal-Mart offers are mainly basics like T-shirts and household goods, while its peer offers more of designer clothes and home decor, along with basics like detergent and dish washing liquid. Wal-Mart is expecting lower customer footfall in the shopping season, while Target looks optimistic as it seems to have struck a balance between price and fashion.

A Dig into another Player

Costco (NASDAQ: COST) is a big competitor for Target and Wal-Mart. This discount store giant separates itself from its peers by its major source of revenue. The company focuses mainly on food and fuel for its revenue, and sells them at near cost levels. Costco’s business strategy makes it a price leader and successful retailer even in bad economic conditions. The bargains offered by company drove customers to its stores to save money. Though the company’s performance is very good, I believe its fairly priced and might not provide handsome returns.

Final Words

Target’s REDcard and Pfresh stores concept speaks greatly to its innovative outlook. The company’s customer retention is very good. A significant investment in online and mobile platforms not only improves existing performance but also adds future opportunities. The response from the Canadian Market adds a lot of growth to Target’s business. This innovative company is a definite buy for your portfolio.


tarunbachhawat has no positions in the stocks mentioned above. The Motley Fool owns shares of Costco Wholesale. Motley Fool newsletter services recommend Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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