- By Harsh Jain
The share price of Target Corp. (TGT) has remained almost flat over the past two years. The stock, however, is headed back in the upward direction though still down 24% year to date.
The retailer's sales have fallen more than 5% in 2016 primarily due to fierce competition in both the retail and grocery market. The continuing rise in online sales has aggressively hurt brick-and-mortar sales. In 2015, Target's chief rival, Wal-Mart (WMT), faced a similar situation and was severely hurt as its share price collapsed more than 30%.
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The intrinsic value of TGT
Wal-Mart, however, has made a comeback and continues inching up at a healthy rate. In contrary, Target is highly profitable and cheap retailer, which had to battle tumbling same store sales, but the retailer recently has been displaying several positive signs of growth.
The stock was boosted from its recent second-quarter guidance revision where the retailer is now guiding above its previous earnings estimate. The company raised its second-quarter guidance keeping in mind the increase in traffic and enhancing sales trends.
Although offline sales continue moving downward at a strong rate, they are not completely dead yet. It looks like the company's nearly 1,850 stores should keep it in good stead as long as it leverages these offline units. Amazon (AMZN), Target's another significant competitor, is well aware there is a place for brick-and-mortar stores in retail space. Amazon holds a leading position in the online sales space, but it is now aggressively trying to gain a strong foothold in the offline sales area.
Amazon recently announced that it plans to acquire Whole Foods Market (WFM) for $13.7 billion, or $42 a share. In fact, Wal-Mart and Amazon have decided to move forward with acquisitions, but Target is implementing an entirely different strategy. The retailer has decided to invest heavily ($7 billion) in itself over the next three years.
The retailer's new plan includes rolling out 100 small-format stores, renovating 600 existing stores, lowering prices across the board, capitalizing in the supply chain to boost sales via online and delivery, as well as investing in digital properties. All of these propositions are targeted at battling Amazon and Wal-Mart, as well as the declining sales they have caused at Target.
Target is doubling down on its efforts to distinguish itself with exclusive brands and to be a front-runner in two key categories. The retailer recently said that it also plans to launch three new apparel brands and one new home goods brand in its stores as well as online this fall. These new brands comprise A New Day, Joy Lab, Goodfellow & Co. and Project 62.