Is There More Upside for this Trendy Retailer?
Yashu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Target Corp (NYSE: TGT), which sells clothes, trendy decor, toothpastes and cereals all under the same roof, has posted higher than expected earnings. While the economic environment has made buyers scrutinize every purchase, the company has lured its shoppers with expanded selection of foods and clothes and also providing discount to its card holders without taking a toll on its profit margins.
The U.S Commerce Department had earlier released the retail sales data which said retail sales rose 0.8 percent in July from June after declining for the previous three months. The quarterly report of Target affirmed this data. The company had a top-line growth of 3.5 percent reaching $16.78 billion this quarter which marginally bested what the analysts’ at Wall Street were expecting. What was even more luring is the earning guidance released by the company. Now, Target expects to earn $4.20 to $ 4.40 per share for the year, up ten cents from its May forecast of $4.10 to $4.30.
Target has been a busy company with constant endeavor to expand and explore new markets. The company has entered into the urban market using the smaller versions of its stores. The company will also sell a line of holiday goods with upscale department store Neiman Marcus Group later this year. The company is also in line to move into Canada next year, which would be its first expansion outside the U.S. It plans to open stores in Canada starting March or April, after taking over the leases of Zellers, Canada’s second-largest discount chain from Hudson’s Bay.
Target's results come in line with better than expected results of brand retailer TJX Companies Inc. (NYSE: TJX). TJX continued to lure in more customers last quarter as the retailer booked a 20.8 percent jump in its net income and a 9 percent increase in its sales numbers. Home Depot Inc. (NYSE: HD), the largest home improvement retailer in the country also recently reported a 12 percent increase in its bottom-line. They have benefited from increasing consumer confidence and the recent recovery in the housing market. Saks Inc. (NYSE: SKS), also saw a better than expected result in the recent quarter. The company has been successful in attracting more luxury customers from around the world. Saks had particularly been paying attention to private label merchandise which has reaped huge benefits for this high-end departmental store chain. All these companies saw growth in their revenue after signs of economic stabilization and increased spending by consumers in this quarter compared to the previous quarters.
Wal-Mart Stores Inc. (NYSE: WMT), one of Target’s arch rivals, has also recently reported its earnings. Expectations had been high with the largest retailer of the U.S as it recently climbed to its record high of $75.24 but the retail giant did not live up to the street's expectations. The company recorded an increase in revenue by 4.5 percent which was marginally below the street's expectations. Target’s stores as compared Wal-Mart stores are generally considered to be cheaper. If you are particularly not inclined for a particular brand and willing to change for a brand on sale, you are sure to save some money by shopping at Target. Between the two companies, presently Target seems a cheaper company and a better stock to be in your portfolio than Wal-Mart. Also the dividend yield of Target as 2.3% is slightly higher than Wal-Mart’s 2.1%. Since Wal-Mart has not particularly surprised the street with higher earnings or guidance, I continue my stance that Target should be preferred over the largest U.S retailer.
Sometimes the absence of bad news is cheered as good news. The economic conditions have not strengthened but have signaled a much awaited pause in deterioration which has been seen as a delight for the markets. The retail sector is historically known to outperform the benchmark S&P 500 index. The retail sector, which is considered as one of the defensive sectors may continue to do well and outperform other sectors and indices if it gets the requisite support from the economy as well. Target and Wal-Mart are two bright stars in this particular sector. Target in particular can be a bright spot as they are becoming better and better at luring shoppers with special deals and other attractions.
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