Target (TGT, Financial) hasn’t yet recovered from the massive hacker attack it saw last Christmas that almost ruined its Canadian operations as they managed to steal 40 million payment-card numbers. Also, it incurred $18 million of net expenses due to the substantial data breached on the plastic cards of its clients.
The retailer has replaced all of its existing cards to its chip-enabled cards to reinforce its commitment toward clients.
Target is improving
However, it has left behind this terrible incident and is back on the track with potential outlook, as the company continues to roll out new advanced tools and technology to reenergize its Canadian operation with some fruitful changes in the management as the retailer hired Mr. Bob DeRodes, as its new Chief Information Officer, to transform its technology and scrutinize its data security.
As it looks ahead, it strategically concentrates on three major priorities to keep Target ahead of its peers and make itself the best choice for customers in an environment that is quite challenging. Therefore it is determined to remain focused on its business, remove roadblocks and unleash the team to move faster through these priorities.
What Target plans to do
Growing traffic and sales in U.S segment is its first priority therefore it focuses on various sensitive factors such as price, trend, and uniqueness of its products & services while maintaining newness in merchandising and presentation and innovation. Besides the company is busy making various promotional offers along with exciting content and compelling deals on its various products and services in these new as well as old stores which are building momentum for the retailer and the company has noticed significant improvement in the footfall of late, which should perhaps help the company offset its decline in same-store-sales in the future.
The second big priority, the retailer is concerned with is to revive and improve its Canadian operation. Target generated net sales of approximately $393 million in the first quarter as against $86 million, in the same quarter last year when it first started its business with 124 Canadian stores. The company further plans to open nine more stores in the region and pump up its merchandising in these stores that should help the company to remain competitive with its peers such as Wal-Mart and Costco.
Target has observed its stores in-demand that were left empty earlier and hence it is bringing in various innovative products and services with improvement in merchandising to keep the momentum going further.
Accelerating digital transformation across U.S and Canada is its third priority. Target is focused on Omni-Channel synergies that should provide them more flexibility and create world-class experience for its clients across these regions. Continuous attention on Omni-Channel platform will certainly help the company to speed up its movement of the products and services comfortably to various stores spread in these regions. Also this should possibly assist the company to clear its excess inventory and long lead time receipts.
Good signals
According to comScore, the company had the strongest growth in digital visit of 20% as compared with seven of its largest online competitors. With continued growth of mobile phones, smartphones and tablets, Target is expected to acquire a great market share in the future as almost two third of its digital traffic is on these devices that will certainly drive its sales and increase its margin in the future. Besides the company has observed significant improvement in the conversion rate recently on conventional as well as mobile platforms that will should improve its profitability. Also the company experienced 30% increase in sales from digital channel in the reported quarter on yearly basis.
Target is also initiating various marketing campaigns featuring national and owned brand items across categories like food, personal care, baby, paper and pets as a destination to shop for anything, anytime and anywhere. The company can thus benefit from this campaign as people travelling would prefer to avail its services as these “fill-in-trip” products and services certainly stimulate customers to walk over to any grocery or drug store.
Additionally, Target recently launched Peter Pilotto and many clients across U.S and Canada have responded positively to this new brand with collaboration with Net-A-Porter that offer exclusive collection of women’s apparel, accessories, and swimwear.
Apart from this, the company launched approximately 2,000 new furniture items from Safavieh- a brand that is mostly preferred by customers while shopping online that has great style at moderate price in company’s website, target.com. The retailer also promoted Safavieh aggressively during the last week of April in spring home sales and showcased it on the Target.com’s homepage and the company observed tremendous improvement in its sales.
Conclusion
Target currently trades at the trailing P/E of 19.18 and forward P/E of 13.05 which states that it still shares cheap valuation and offers a lot of room to grow in the future. Target also provides operating margin of 5.08% while its profit margin remains at 2.59%. Target has operating cash flow of 3.81 billion and leverage cash flow of $811.00 million. In addition target recently paid dividend of $272 million despite not so very impressive quarter, which was approximately 19% higher than a year ago period. Also analysts have forecasted CAGR of 11.25% for the next five years, which is handy growth in the retail segment.
