Target (TGT) announced Sunday that it is teaming up with Disney (DIS) to launch its shops inside 25 select Target stores in October, and another 40 stores by October 2020. Target also plans to open a new store close to Walt Disney World Resort in Orlando in 2021.
The retailer said the Disney stores would offer more than 450 items, including apparel, toys, games, and about 100 products exclusive to Disney’s retail locations. Having a specialty store-in-a-store adds uniqueness and strengthens product offerings, attracting customers. By offering compelling merchandise to customers, Target can drive sales. Combined with the convenience of same-day delivery, Target’s expanded Disney assortment could keep its cash registers ringing.
The retailer’s exclusive product launches have garnered strong sales as well, and it has struck deals with several exclusive brands. It also recently launched its grocery line, Good & Gather.
In the absence of Toys “R” Us, retailers such as Target are seeing higher toy sales. During the last holiday season, Target added 2,500 new and exclusive toys. We believe the addition of Disney’s product line before this year’s holiday season could boost the retailer’s sales growth.
Target stock is outperforming the market
Target stock has risen 56.6% YTD (year-to-date) and 21% since it announced its solid second-quarter results on August 21. In comparison, the S&P 500 is up 13.6% YTD. The retailer’s exceptional comps, earnings growth, and positive guidance are driving its stock higher.
Several factors are boosting Target’s sales. Its same-day fulfillment options, store remodeling, and small-format stores are generating higher traffic. The retailer’s compelling assortment and competitive pricing are supporting its growth further.
We expect Target’s bottom line to grow by a double-digit percentage in fiscal 2019, driven by higher sales and margin expansion. We foresee the retailer being profitable in fiscal 2020 as well. Furthermore, given the strong growth in Target stock, a pullback could present a buying opportunity.