It looks like the data breach has taken a heavy toll on Target's (TGT, Financial) performance this year. The stock has underperformed the S&P 500 as it has lost around 3% in 2014. The company has struggled with its recent quarterly results, and investors may have lost confidence in the stock. However, looking at the company's initiatves, I think a turnaround may be in the cards for Target.
Should investors be hopeful?
Target is facing some temporary problems, which were the reason behind the decline in its profit last quarter. Target's entry into the Canadian market was not up to the mark, and additional costs related to the data breach, when information from more than 40 million credit and debit cards was stolen, have contributed to its weakness.
However, Target is still an attractive income and growth opportunity, and has plenty of value left in it. The company recently boosted its dividend payment by 21%, bringing its dividend yield to around 3.6%, a win over its rival Walmart (WMT, Financial), which offers a yield of around 2.5%. Its superior dividend makes Target an enticing income and growth investment.
Strategies to count upon
Target is currently focusing on becoming an effective omni-channel seller by increasing its online and mobile sales. The company reported a 20% year-over-year increase in digital visits last quarter. The company has almost all its in-store products available online, in addition to selections that are only available on its website. Its mobile app, Cartwheel, has attracted over 7 million users since its release last year. The app offers discounts on selected items, thereby increasing customers’ site visits and spending by nearly 30%.
Target is seeking growth in both sales and traffic in the U.S., as it has 1,789 retail units in the U.S. To drive growth, it aims to deliver unique products and services. On the other hand, it is also planning and working rigorously on improving its performance in Canada, where it only has 127 retail units. It is working on decreasing its supply burden via making the company more digital and promote online sales in Canada.
Above all, the company needs to make better use of its physical space. With a huge number of stores in the U.S., it should now use some of its physical space to create stores "within-a-store," a concept which is already being followed by some of its competitors. This will help the company promote its key brands, as well as diversify its revenue. For this, Target needs to build partnerships with top fashion brands interested in promoting their products via Target.
Aiming at improvements
Last but not least, Target has to regain the trust of its customers, which it seems to have lost since the data breach. On this front, Target is shifting to using industry-leading chip-and-PIN technology from MasterCard (MA, Financial), and has accelerated the provision of chip-enabled card readers to all its stores to improve security.
Target is also working on improving its sales in Canada. Target has lost close to $1 billion since it opened shops in Canada 18 months ago. However, the company is working to get back on track in this market. Target is planning to re-launch its 130 stores in Canada and may even lower its prices for shoppers. This move may boost Target’s sales as people have often criticized Target Canada of being more expensive than Target U.S.A.
Conclusion
All in all, Target is the third-largest retailer in the United States and stands at the eleventh place in the world. Target is confident that it can overcome the recent data breach issues while still rewarding shareholders. Its confidence is backed by its recent dividend boost that has made it one of the top-yielding plays in retail. Therefore, for investors looking for a turnaround play in retail, Target is a stock worth considering.
