If Target improves its value proposition and brand perception in Canada, earnings growth could accelerate sharply as fixed costs are leveraged.
A food offering, omnichannel platform, and loyalty program should help to drive store traffic, delivering enough expense leverage to offset the negative impact on gross margins from those initiatives.
Target's sale of its credit card receivables business, which transferred all default risk to a third party, allowed the company to pay off a significant amount of debt, lower interest expense, and repurchase shares. Read more
Target's ROICs have declined since the PFresh initiative transitioned a larger portion of assets to lower-return food business.
Economies of scale aren't an advantage against Wal-Mart and Kroger, the number-one and -two share leaders in food, respectively, while Amazon's dominant e-commerce business could challenge Target over time.
Target's early missteps in Canada may have permanently impaired the firm's brand intangible asset there. Canada may prove to be a more mature and difficult market to crack, as opposed to an untapped one with an abundance of exploitable growth opportunities. Read more
Although Target's returns on invested capital have declined over the past few years, we believe management has made the right strategic decision to deploy (to a much higher degree) inelastic food products. In our view, driving consistent comps in general Read more
Target is one of the largest retailers in North America, with about 1,800 units. Target's large-format stores offer general merchandise and now a full assortment of food Read more
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