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Inside Target's Strong 2Q17 and Rising Stock

PART:
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Part 4
Inside Target's Strong 2Q17 and Rising Stock PART 4 OF 6

Behind Target’s Top-Line Turnaround Story

Digital business an important pillar

Target’s (TGT) strong e-commerce sales were one of the key drivers of its turnaround story in fiscal 2Q17. Although TGT’s e-commerce business forms only a small part of its overall sales, the strong growth in the digital business is definitely helping drive traffic and contributing to comps (comparable same-store sales) growth in a meaningful way.

Behind Target’s Top-Line Turnaround Story

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In fiscal 2Q17, the top line in Target’s digital business jumped 32.0%, due to efforts to strengthen its e-commerce arm. Target’s initiatives, including an in-store pickup facility and faster delivery options with its Restock pilot program, are apparently working for consumers and leading to higher digital sales.

Meanwhile, Target has announced the acquisition of Grand Junction, which should also strengthen its delivery capabilities and speed up delivery timing, resulting in increased e-commerce sales. This latest move positions TGT to compete with bigger rivals like Amazon.com (AMZN) and Wal-Mart Stores (WMT), who have been investing heavily in their businesses for a greater market share.

Other growth measures

Target has been meanwhile focusing on store remodeling and small-format store openings. TGT’s management stated that remodeled stores and small-size stores are seeing improved comps growth and are generating higher productivity.

Target’s rollout of exclusive brands including Pillowfort and Cat & Jack have been seeing stellar growth, and TGT recently introduced the infant brand Cloud Island, which is growing at a double-digit rate. TGT has also launched the maternity brand Isabel Maternity and remains on track to launch four new brands in the apparel and home category.

Outlook

Target is expected to benefit from its strategic initiatives aimed at driving top-line growth. However, tough YoY (year-over-year) comparables, increased competitive activity, and the current soft industry trend are all likely to restrict TGT’s sales growth going forward. Target now expects its comps to either fall 1% or rise 1% overall in fiscal 2017.

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