Will Target Maintain Its Sales Momentum?
Factors to drive sales
Target (TGT) has impressed investors with its sales performance during 1H17. The company’s value offerings, differentiated products, and e-commerce initiatives have helped it post positive sales growth in fiscal 2Q17. It reported lower sales for four consecutive quarters, as you can see in the following graph.
The company’s focus on store remodeling and opening new small-format stores is acting as a catalyst to its top and bottom-line growth. These stores are witnessing a double-digit rise in comps. The stores are also generating higher productivity. Target remains on track to remodel more than 100 stores in fiscal 2017. It’s projected to finish remodeling more than 300 stores by fiscal 2018.
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In addition to stores, Target’s focus on reinventing its product portfolio through the rollout of new and exclusive brands continues to generate strong sales, reflected through the success of the Cat & Jack brand. The company plans to launch 12 new exclusive brands by the end of fiscal 2018. Launching new brands is expected to generate incremental sales for Target.
Target’s e-commerce business is performing well and contributing to its comps growth. Its digital initiatives including ship-from-stores, in-store pickup, and fast delivery bode well with consumers. The initiatives are expected to boost the company’s overall sales growth rate.
Recently, Target announced price cuts for thousands of its products. The price cuts are projected to drive store traffic and comps growth.
Given Target’s efforts to improve its sales, the company is expected to report healthy top-line growth in upcoming quarters. However, Target’s competitors aren’t sitting idle. Walmart (WMT) and Amazon (AMZN) increased their investments in growth initiatives. They’re also offering lower prices to gain incremental market share. Target’s management expects its fiscal 2017 comps to fall 1% or increase 1%. Higher competition and soft industry trends will likely impact Target’s comps.