For most retail companies, the impact of a health pandemic is severe, but by contrast, Target (TGT.US) has handed over an unexpected "report card". The stock is up 16% so far this year, and the company released one of its best quarterly reports ever in the second quarter.
During the quarter, comparable sales rose 24.3% from a year earlier, and adjusted earnings per share almost doubled from $1.82 to $3.38. Target's investment in same-day delivery services (order pick-up, Shipt and car delivery) clearly paid off, with sales of same-day services up 273% year-on-year in the quarter, contributing 6 percentage points to the company's performance growth. Measures such as speeding up pick-up time and increasing the speed of receiving orders make more than 90% of orders completed by stores, which is a cost-effective way to meet the needs of e-commerce.
So, is this a good time to buy Target? Analyst Jeremy Bowman said the stock is a good stock worth holding for any investor.
Short-term tailwind
Target's performance soared during the health incident and was one of the few retailers to sell non-essential goods such as clothing, household goods and electronics, as well as basic goods such as food, cleaning products and medicines, in addition to Walmart Inc and Costco (COST.US). In fact, Target is even better off than Walmart Inc and Costco because its business is more evenly distributed among the two categories of goods, and most of their sales come from groceries.
Product diversification is a huge advantage of Target during health events. While clothing sales at competitors such as Gap (GPS.US), TJ Maxx and M.US all plummeted, Target's clothing sales surged by double digits in the second quarter, a sign that consumers are merging their shopping schedules and putting food and other items on the same travel schedule.
Target also seems to be in a strong position in big shopping events in the second half of the year, especially as its main competitors struggle. This includes the first school season, which Target has extended to accommodate the staggered start schedule in most areas.
Another positive factor is that parents are likely to buy what their children need for school when they go to the store to buy food or medicine. Similarly, the company is increasing its choice of Halloween costumes, betting that Americans want to celebrate the holiday even though it may not follow the trick-or-treat tradition this year.
In addition, Target is preparing to grab market share from stores such as Party City and pop-up Halloween. More importantly, the company's investment in same-day arrival, its focus on toys, its diversity of products and its strength in e-commerce have greatly increased its chances of becoming a winner in the holiday season.
Long-term advantage
On current momentum, Target is likely to continue to gain more market share from faltering competitors, ensuring that the company will remain in a strong position in the post-health event era. The company's market share increased by $5 billion in the first half of this year and is expected to increase further in the second half of this year, as the economic model spawned by health events still exists, management said.
In addition, Target has opened small stores in less served areas of cities and university towns, which fits well with its omni-channel and day-to-day strategy, which will help drive the growth of brick-and-mortar stores and online sales. The company also has a large number of own brands, which distinguishes it from department stores and low-cost chains that rely on big brands, and gives customers an additional reason to shop. It is worth mentioning that the sales profit margin of its own brand is also higher than that of famous brand products. Target's own food brand, Good and Gather, has $1 billion in annual sales less than a year after its launch, and the company recently added a high-end product line to the brand.
While the physical retail industry is struggling, Target has cracked the password for success, which is part of the reason why the company's share price has risen more than 150 per cent over the past three years.
Fundamental situation
Analysts note that in addition to the growth outlook, Target is also a "dividend king", raising its quarterly dividend yield of 1.8 per cent in each of the past 49 years. In addition, the stock's price-to-earnings ratio of just 21.7 looks very reasonable, well below the S & P 500's current price-to-earnings ratio of 27.8.
Therefore, combining these factors, it can be said that Target is suitable for almost all investors. It provides a reference for those looking for dividends and favourable valuations, and for now, the company's growth prospects are among the best in the industry, as it has proved that the company can withstand competition from Amazon.Com Inc or others.
Analysts said that after a sharp increase in profits in the second quarter, Target is expected to have further room for earnings growth. Like its store itself, investors can find everything they want on Target.