This Stock's Right on Target

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If Target (NYSE: TGT  ) wasn't already on your radar, it should be now. The Minneapolis-based discount retail titan has once again proven it's in it to w in it. Forget about its Canadian expansion plans for the moment; Target's real profit power rests in its multichannel growth strategy and customer-rewarding 5% program.

Go ahead, reward yourself
Target's nationwide 5% discount for customers making purchases with its in-house credit cards has paid off in its quarterly results. The retailer squashed Street estimates, coming in strong on earnings of $1.03 per share in the second quarter, and posting a net income of $704 million. The company also notched same-store sales gain of 3.9% -- its strongest performance in four years. That jump reflects the success of the company's REDcard program.

Every time you use a REDcard to shop at a Target store or on, you automatically get an additional 5% off every item purchased. The company's REDcard credit and debit cardholders account for more than 9% of sales, with the top 25% of cardholders spending more than $3,000 a year. This is a strong competitive advantage for attracting and retaining loyal customers. By grabbing market share through its reward program, and undercutting the world's largest retailer on prices, Target is taking the fight to rival Wal-Mart (NYSE: WMT  ) .

Growing convenience
It may come as a surprise that Target is expanding into the food space as part of its grocery-store expansion plan. However, that move has proven profitable for competitors like Wal-Mart and Costco (Nasdaq: COST  ) . Target's grocery segment fortifies its position as a one-stop shop. Initiatives like its affordable private-label Archer Farms Simply Balanced line, along with more than 700 organic foods, help the retail chain differentiate itself from competitors.

Getting it right
Whatever your investing style, this stock's a keeper. Target gets its business right by consistently generating profit, creating a competitive advantage with its REDcard program, expanding into an international market, and staying true to its "Expect More. Pay Less." promise.

Leave a comment below telling me why you can't get enough of Target -- or, if you disagree, why you think the retailer is destined to fail.

Fool contributor Tamara Rutter is a proud owner of Target stock. Connect with her on Twitter @TamaraRutter for more Foolish fun. The Motley Fool owns shares of Wal-Mart and Costco. Motley Fool newsletter services have recommended buying shares of Costco and Wal-Mart, as well as creating a diagonal call position in Wal-Mart. 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.

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  • Report this Comment On September 01, 2011, at 10:57 AM, avida24dollars wrote:

    Target appeals to a stronger financial audience than walmart because it carries more 'middle class' type stuff (from what I understand). Target will spread like herpes in Canada because there's a much larger middle class market (secular growth with large public service), but it's much smaller than the US so the market CAP won't change too much.

    That being said, I like saving 5% and would probably get a CC from them when they migrate. TGT is near it's 52 week low - buy now or perish in the sun...sweater monkeysssssss

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Related Tickers

10/27/2016 4:06 PM
TGT $67.62 Down -0.97 -1.41%
Target CAPS Rating: ***
COST $150.86 Down -0.12 -0.08%
Costco Wholesale CAPS Rating: ****
WMT $69.83 Up +0.24 +0.34%
Wal-Mart Stores CAPS Rating: ***