The third-largest U.S retailer, Target (TGT, Financial), reported a drop of 61.7% in its net income during the second quarter due to massive data breach last year that cost shareholders about $148 million. Its net income for the quarter came in at $234 million or earnings of $0.37 per share as compared to $611 million or earnings of $0.95 per share last year in the second quarter. However, it managed to increase its overall sales by 1.7% for the quarter to $17.4 billion as against $ 17.12 billion in the corresponding period a year earlier.
Looking ahead, the Minneapolis-based company expects its earnings for the third quarter 2014 to fall between $0.40 and $0.50, excluding the data breach expenses. However, Target has lowered its full-year outlook for earnings to $3.10 per share to $3.30 from $3.60 per share to $3.90 per share it has predicted earlier due to the negative effect of the data breach and stagnant retail environment that continues to bother most of the other retailers in the same platform such as Walmart (WMT, Financial) and Amazon.com (AMZN, Financial).
Focusing on improvements
Nevertheless, there remains a lot improvements on the card to revitalize guest experience at its stores across united States and Canada such as enlargement of the assortments on a regular basis with inclusion of natural and organic products, combining shipment, reducing gap in the communication and effective packaging with the right size that should drive its growth in the second-half of the year.
The guests will be able to enrich their shopping experience online as the company is developing an optimized mobile capability that should drive its online sales through mobile devices. Also, the gift subscriptions moves will allow the customers to register for subscriptions and avail its services, making it easy for people to give gifts to their loved ones.
Target is experiencing slow but steady recovery in overall traffic across the United States and Canada due to a favorable back-to-school season. Also, John Mulligan, executive vice president and chief financial officer, said comparable sales increased over 1% in July that has been translated into August fueled by early back-to-school season in the United States. In addition, the company is seeing growing traffic for its digital sales in the United States.
Customer visits to its mobile website, including iOS and Android apps, has offset a drop in visits to its conventional site. In fact, Target is experiencing an improved conversion on both the conventional as well as the mobile podium, driving its overall conversion.
New campaigns to drive growth
In addition, Target remains on track to sustain this momentum with its newly launched ad campaigns that throw lights on millennials, developing its brand perception from that of a brick-and-mortar destination to a complete retail experience. Further, this ad campaign is directed to focus on three important Omni-channel initiatives such as subscriptions, Cartwheel and store pickup that should help the company organize its comp stores well amid tough competition in the industry while saving time and money for its customers across the United States and Canada.
Besides, Target is strategically engaged in enhancing guests' experience at its stores. The company recently launched a proof-of-concept to incorporate Target.com into Cartwheel, making it easy for its customers to shop with Cartwheel across its stores. The customers can now avail online eligible offers in their respective Cartwheel apps, which are later directed to the Target.com mobile website, including them in their Target.com cart.
In addition, the company is executing various other initiatives such as free shipping on orders more than $50, adding $10 service for same-day delivery on Target.com, but the items should be placed before 1:30 p.m. and free shipping for Target cardholder customers that should enrich customers' experience on Target.com. In addition, the company has expanded its shipping capabilities to an additional 35 markets in United States. These strategic moves have already started in incremental traffic for Target as the company has seen tremendous improvement in the digital conversion rates and sales.
Furthermore, the company is running various promotional programs for its services such as a store pickup program and offering discounts that have accelerated traffic at its stores. Target is observing a good response particularly with its Target.com.
Conclusion
Target looks re-energized after these strategic moves that should generate improved margins for the company going forward and add value to the shareholders while delivering handsome returns to the investors. Moreover, Target’s valuations look pretty healthy as the company currently trades at the trailing P/E multiple of 20.40 and forward P/E multiple of 15.85. Also, its PEG ratio for the next five years stands at 1.58 that further support its growth in the long run.
The stock’s performance has gone down for the last twelve months as its profit and operating profit margins stand at 2.07% and 4.59%, but the strategic initiatives will certainly improve these margins going forward. In addition, the analysts have estimated CAGR of 11.95% for the next five years, along with solid growth of 19.40% next year that makes the stock worth buying for short as well as for long-term.
