Target's most recent results show a company that's still struggling to attract shoppers in an ultra-competitive market. Customer traffic was flat last quarter, compared to a 4% jump for Costco and a 1.5% boost for Wal-Mart. Target hasn't found great traction in its online business, either. E-commerce contributed 0.6 percentage points of the company's 1.2% comparable-store sales in Q1, down from 0.8 percentage points the prior year.
Can Target's stock recover?
Target has significant competitive strengths that it can lean on to engineer a recovery from its funk. Its signature categories, for example, which include apparel, baby, wellness, and kids products, are growing faster than its overall business and carry significantly higher profit margins. These exclusive offerings are a big reason why the retailer posts unusually high profitability: Gross profit margin is 30% of sales, compared to 25% for Wal-Mart and just 13% for Costco. They also make the stores stand out in a sea of competition.
Target's shopping app. Image source: Target.
In addition, Target's commitment to the online sales channel could start producing consistent growth soon. After all, management did extremely well during holiday season by using a simple but effective digital sales promotion. The slowdown that followed in the next quarter was disappointing, but Target still managed to boost online selling by 23% in Q1 -- on top of the prior year's 38% spike.
Finally, as rival Wal-Mart has demonstrated, customers respond positively when retailers make improvements to the shopping experience. Target has plenty of room for gains here through initiatives like better merchandise stocking and a revamped grocery section .
Target can't just hit one of these priorities and expect to win back significant market share, though. The retailer needs to press its merchandising strengths, establish itself as an online sales leader, and improve the in-store shopping experience in order to get back to consistent growth and produce strong investor returns from here.
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Demitrios Kalogeropoulos owns shares of Costco Wholesale. The Motley Fool owns shares of and recommends Costco Wholesale. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
