The big box retailers, such as Target Corporation (TGT, Financial), make most of their revenue during the peak holiday season. Such retailers offer products at a discounted price, which lures customers to its stores. The last holiday season was even better since lower fuel prices and higher income left people with more money to spend. Therefore, Target witnessed a blockbuster quarter, despite a number of headwinds. The numbers were ahead of the Street’s estimates, sending its share prices north. In fact, its share price has surged 35.3% in the last one year, owing to its great performance during the same period.
A bag of good numbers
Revenue for the quarter surged 4% to $21.8 billion, as compared to the previous year. Thus, it was higher than the analysts’ estimate of $21.6 billion and was driven by both an increase in the number of stores and comparable store sales growth.
Comparable store sales grew 3.8% during the quarter and were driven by a 3.2 % increase in the number of transactions and 0.6% rise in average transaction size. Also, digital channel sales growth of 0.9% helped same store sales grow. Digital channel sales have been growing for the last few months and have grown 30% in the last one year.
Further, higher demand for products in categories of kids, baby and wellness resulted in increased sales during the fourth quarter. The gross margin of the company expanded 90 basis points to 28.5%.
Also, earnings moved 15% higher, clocking in at $1.50 per share. The bottom line was also higher than the estimate range of $1.43 per share to $1.47 per share. Improved margins and higher sales enabled earnings to grow.
What lies ahead?
The company’s performance was decent enough, despite problems such as the data breach last year and the failed expansion into the Canadian market. Thus, Target discontinued its operations in the Canadian region since it could not foresee profits for the next 6-7 years. Further, it has managed to rebound from the data breach and the customers are gaining confidence once again.
Further, the retailer has a number of measures up its sleeve to attract more customers and grow its business. It has undertaken an effective inventory and price management and has diversified its products to provide more reasons for customers to visit its stores.
Also, it has been developing its online portal since e-commerce business has gained momentum. It even provides a provision of free shipping to the online customers. Target has come up with Express stores which are lower on the cost structure and is easier to be reached by the customers.
The company’s REDcard penetration has increased to 21.1% from 20.9% last year as it provides 5% rewards to its loyal customers. This has been an effective strategy to attract customers. Thus, these efforts, along with price match strategy and P-fresh remodel program, should help the retailer grow its business.
Final thoughts
Target has been remarkable with its efforts to overcome the hurdles and register great results. The new rewards program, growing online sales and growing demand for its products, make this company attractive. Furthermore, the company is optimistic about its future and expects earnings to be in the range of $0.95 per share to $1.05 per share in the current quarter. It has also paid dividends of $1.2 billion, an increase of 19.8% over last year. These factors, together, make Target a promising bet.
