Q2 solid sales confirm that Target is well-positioned to ride the new retail trend of merging online and offline sales.
Target Corporation’s (TGT) strong performance in the second quarter reinforced the company’s leadership in the retail space, according to its chairman and CEO, Brian Cornell.
“In the second quarter, our business generated continued growth on top of record increases a year ago, reinforcing Target’s leadership position in retail,” he said. “We’ve spent years building and investing in the durable model we have today, which is supported by a differentiated strategy and the best team in retail.”
Target reported Q2 EPS of $3.65, up 8.9 percent from $3.35 in 2020, and ahead of analyst expectations, and offered an optimistic outlook for the rest of the fiscal year. Total revenue came at $25.2 billion, up 9.5 percent from 2020. Operating income was $2.5 billion, up 7.2 percent from $2.3 billion last year.
Comparable sales grew 8.9 percent in the second quarter, reflecting the return of shoppers to the company’s stores, which are at the core of Target’s “durable model.” (See Target stock charts on TipRanks)
Target’s Durable Model
Target has a simple business model: place the store at the center of the new retailing universe, which is shaped by the merger of online and offline sales. To accomplish this goal, Target invested heavily in remodeling more than half the stores in the chain over the last four years, while enhancing service and subject matter categories.
The company then expanded its product and private label brand offerings to turn Target into a one-stop shop. That’s a place where customers can buy anything from groceries to medicine and general merchandise.
“We believe that America still embraces stores, and the traffic we’re seeing tells us that stores continue to play a very important role,” said CEO Brian Cornell in a conference call.
Meanwhile, Target has also invested in fulfillment and delivery. For instance, the company has launched Same Day Shipping with Shipt, its free two-day delivery offering. Also, it has improved curbside and in-store pickup, giving customers the choice to order online and have products picked up at the local stores. That’s a big deal for customers who cannot wait for delivery, and something purely online retailers like Amazon (AMZN) are missing thus far.
More Opportunities Ahead
Target’s significant investments in expanding its offline and online presence will help the company explore new opportunities in the hybrid retail space. TipRanks assigns a “Perfect 10” Smart Score for the company, citing solid technical and fundamentals.
“Even after unprecedented growth over the last two years, we see much more opportunity ahead of us, and we’re leaning into opportunities to invest in the long-term growth and resiliency of our business,” adds chairman and CEO, Brian Cornell. Our team and operating model can seamlessly adapt to changes in the environment, and we’re well-positioned to deliver outstanding performance in the back half of the year.”
The 17 Wall Street analysts following Target agree. They see it trading at an average price of $278.71 over the next 12 months, with a high forecast of $317.00 and a low forecast of $245.00. The average Target price target represents a 9.9% upside change from the last price of $253.40.
“The strong consumer, together with TGT’s positioning from format, merchandising, brand, price, and channel perspectives should mean solid results will continue through the balance of 2021, “says John Zolidis, president of Quo Vandis Capital. Provided, of course, that the American economy will continue to recover from the COVID-19 recession.
Summary and Conclusions
Q2 solid sales helped Target reinforce its leadership in retailing, which the company has gained by making stores the center of its offline and online strategy. That’s good news for the company’s shareholders, as strong sales provide the free cash flow needed to finance dividend hikes and share repurchases.
Disclosure: At the time of writing, the author owns shares of Target.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
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