One of the biggest retailers Target Corporation (TGT, Financial) reported its first-quarter earnings recently. The results beat the Street’s expectations and delighted investors as the company grew its earnings the most in the last six years. Let’s take a closer look at Target’s performance and its future plans.
What's driving growth
There were a number of factors driving this growth. High demand for its stylish and cheap clothing along with a wide variety of food under the same roof attracted customers to a great extent. There was an impressive increase of 5.3% in comparable store sales, a key indicator of a business’ health in the retail industry, helping the revenues shoot up. Adding to it was the contribution from new stores which were opened last year. The rise in volumes in stores was driven by the weather which was warmer than usual this time.
Strategies
The company’s strategy of giving 5% discount to the customers who pay by Target’s VISA credit or debit cards helped Target increase footfall in the stores especially sales volumes to a great extent. Though the strategy was implemented in 2010, it had an amazing effect when the company’s stores offered basic necessities and trendy apparel side by side in the unexpected warmer weather with the discount making things sweeter.
The retailer is opening CityTarget stores, which is an urban format store and smaller in size since the urban areas cannot accommodate the usual larger sized facilities. This had a positive impact on the sales for the quarter. The company is planning to open another five such stores in the coming months.
Along with all the positive factors working for the company this quarter and its growth initiatives was the benefit of increased sales due to loss in sales by JC Penney (JCP, Financial) since it was planning to work on a retail strategy of a makeover.
Target entering the Canadian market, which is the first international expansion for the company. This international expansion definitely has huge startup costs associated with it and had a negative effect of 8 cents per share in the company’s EPS for the quarter, weighing upon the earnings.
Conclusion
Target has been doing really well as it enters into new market segments, grows its geographical footprint and offers wide variety of products. Each strategy has been benefiting the company and as the economy is on the path of recovery, the company seems to be on the right track to drive its top line further.
