Why Target’s Sales Could Improve in Fiscal 2Q17
What analysts project
Analysts expect Target (TGT) to post sales of $16.3 billion in fiscal 2Q17, reflecting an increase of 0.5% YoY (year-over-year). The company’s management stated that Target saw improved store traffic in the first two months of fiscal 2Q17, which should result in modest comparable store sales growth (or comps).
Notably, Target has reported sales declines in the past six consecutive quarters as weak store traffic and increased competition from Walmart (WMT) and Amazon (AMZN) took a toll on this metric. The company’s unfavorable mix further subdued its sales growth.
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The primary reason behind Target’s sluggish sales performance was its offerings. The company’s products, excluding its signature categories, failed to generate mass appeal and resulted in lower store traffic and declining comps. Stiff competition in its Grocery segment further dented its sales numbers.
In comparison, Walmart and Costco (COST) are witnessing better comps growth on the back of improved store traffic.
What will drive fiscal 2Q17 sales?
Target (TGT) has taken several strategic initiatives that are gaining traction and are expected to boost the company’s top-line performance. For example, the company is focusing on small-format stores that are generating strong productivity and are seeing double-digit comps growth.
Target is remodeling existing stores and closing underperforming ones to generate higher sales and productivity. The company’s addition of new brands to its successful signature categories is expected to accelerate sales growth.
Target is fortifying its digital business and has introduced several innovative and shopper-friendly initiatives. Its next-day delivery service through its Restock program seems to fit its customers’ changing shopping patterns.
However, most of the company’s initiatives are likely to take time before meaningfully impacting its sales growth rate. A tough retail environment and increased competition are likely to pose challenges in the near term.