Target Hits the Bull's-Eye

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When I shop at Target (NYSE: TGT), the experience is always pleasant, and the selection makes me feel that someone has crept into my mind and is trying to make my life a little easier. The roles were reversed recently when I called on Target (in my take titled Retailer's on Target) to stick to its core strategy and shed its cumbersome department stores, Mervyn's and Marshall Field's.

I've suggested changes to management several times in my career, but most of those pointed comments have fallen on deaf ears. Of course, I had nothing at all to do with Target's recent sale of both Mervyn's and Marshall Field's. The company agreed to sell Mervyn's to an investment consortium for $1.7 billion in cash, and it recently completed the sale of Marshall Field's to May Department Stores (NYSE: MAY) for $3.2 billion.

The business plan and retailing strategy is so rock solid that I see Target as the Nordstrom (NYSE: JWN) lite of the retailing industry. I've never been in any other stores that really put the customers first no matter what the circumstances the way those two do. I used to enjoy shopping at Wal-Mart (NYSE: WMT), but once I set foot in Target there was no going back. The tremendous shopping experience, combined with the financial drag of the department stores, is why I think Target will be a much more attractive company with its tighter focus.

The company is coming off a bit of a slow time; same-store sales in the second quarter grew 3.9%, but Target has high hopes for back-to-school demand. Management said that it is "confident that we will continue to enjoy profitable market share growth throughout the remainder of 2004 and well into the future." Target should be able to back up this statement, given its renewed focus and a commitment to excellence at the retail level.

The fact remains that Target is head and shoulders above its main competitors: Wal-Mart and real estate baronKmart (Nasdaq: KMRT). The company's friendly, one-stop shopping environment provides a clear competitive advantage, and the sale of Mervyn's and Marshall Field's should translate into a higher quality of earnings and additional cash flow to invest back into its core operations. I view the shares, which are trading at 16 times next year's earnings estimate of $2.64 per share, as a solid total return investment given the company's 15% growth rate and 0.79% dividend yield.

Take aim and shoot your thoughts out at the Target discussion board.

Phil Wohl spent more than 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.