Target Whacks Wal-Mart

In the battle between the discounters, it's easy for some of us to argue that Target (NYSE: TGT  ) is more tantalizing than Wal-Mart (NYSE: WMT  ) these days. Target's May same-store sales data just added more fuel for the theory.

Target said its May comps rose 5.8%, versus a 5.7% increase in comps this time last year. Total sales rose by 10.1% to $4.33 billion. In even better news, Target said it expects June same-store sales to increase by 3% to 5%.

Meanwhile at Wal-Mart, May comps were up 1.3%, including sales of pricey gas to consumers, and only 1.1% if you exclude gas sales. It forecast its June comps to range from flat to an increase of 2%. The discount giant has struggled with weakness in its apparel and home product lines, and it has also said the high price of gas is influencing its customers' willingness -- or ability -- to buy.

One month of sales data doesn't make a good investment thesis, of course, but Target has outshined Wal-Mart many times over the last year and so investors probably see a pattern emerging. Target has long worked on its "cheap chic" strategy, honing it over the course of years, and it appears that strategy lately is more than bearing fruit. After all, Target may be a discounter, but it also draws a more affluent customer base, and that customer mix is crucial to keeping the growth going even when some consumers have to cut back. Wal-Mart is going to have a hard time building the same type of cachet, and if it tries, it seems like it would be a long process.

Earlier this week, people seemed to feel more optimistic about Wal-Mart because of its plans to slow down new store openings, emphasize share buybacks, and focus on fixing what ails its current stores. That does sound prudent, but Wal-Mart's obviously got some work to do in finding growth again -- not that coaxing additional growth is exactly easy when you're a retailer that pulled in $355.38 billion over the last 12 months.

Target has long been on my watch list, given its impressive growth and competitive positioning. I believe it's well positioned for many different and important trends in retail these days. Trading at 15 times next year's earnings may not sound dirt cheap, but it might turn out to be a low price to pay given the fact that Target's competitive advantage continues to help it pilfer business from the lower end of retail and the higher end, too.

Aim for more Foolishness, by reading the following stories about Target:

Wal-Mart is a Motley Fool Inside Value recommendation. To find out what other stocks Philip Durell considers the best bargains, take a 30-day free test drive.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


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