Who needs a thriving stock market when you own shares of Target (NYSE:TGT) and RH (NYSE:RH), the company formerly known as Restoration Hardware?

Both retail stocks were stars on an otherwise forgettable Wednesday for the broader market. Key indexes went south on the day, but the two companies' share prices sure didn't. Here's why, and whether they're still buys after their latest price bumps.

The lobby area of a Target store in Duarte, California.

Image source: Target.


Retail apocalypse... what retail apocalypse?

In an age when traditional retailers are meant to be going the way of the dodo bird, Target not only survives but thrives. Strong evidence of this was presented Wednesday when the company unveiled its Q3 of fiscal 2019 results; following this the stock rose sharply to close 14% higher on the day.

Yes, the figures were that good. On the top line, Target booked just under $18.67 billion in revenue, a year-over-year improvement of almost 5%. This was on the back of a 4.5% increase in same-store sales. GAAP net income also rose, climbing by nearly 15% to $714 million. On a non-GAAP (adjusted) basis, per-share earnings came in at $1.36.

The company simply crushed analyst estimates, particularly on profitability. Those prognosticators were looking for only $18.47 billion in revenue and an adjusted per-share net profit figure of $1.18.

Target has been very successful in getting more customers through its doors (as shown by its 3%-plus growth in visitor traffic), differentiating itself from other general merchandise retailers by offering exclusive collections of certain goods from well-known designers.

Additionally, it's ripped a page from Amazon.com by offering same-day delivery options from its online store. No wonder that online comparable sales rose by a stiff 31% year over year.

In the wake of these very encouraging improvements, Target raised its guidance for adjusted net profit for the full fiscal year. The company is now estimating it will post an adjusted earnings per share of $6.25 to $6.45, well up from the previous expectation of $5.90 to $6.20. Top-line growth, meanwhile, is anticipated to be 3% to 4%.

Target is one of those rare retailers that has smart ideas for improving both its physical and online sales, and is turning those ideas into growth. As the retail apocalypse takes its toll on rivals that don't have this talent, Target should distinguish itself and benefit even more. I'd still be a buyer of its stock even after Wednesday's big upwards price move.


It's impressive what a CEO's appearance on a well-known TV program, plus an effective seal of approval from the world's most celebrated investor, can do to a stock. Enjoying both advantages, RH stock closed the day 4% higher. 

The company's CEO, Gary Friedman, was interviewed on CNBC's popular Mad Money stock market program on Tuesday. During the interview he compared RH's business model to that of Apple and a new major shareholder in the company, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B).

Friedman said that RH is establishing not only a brand, but an ecosystem (as Apple has with its iLine of devices and associated software and services). It also aims to be an operation like the Warren Buffett-led Berkshire, posting strong returns on low expenses.

To me, this sounds a bit fanciful for a business that remains a rather straightforward furniture and home goods retailer at its core (despite recent-ish innovations like its membership service).

But RH's recent performance has been good enough to attract a picky investor like Berkshire; the retailer's Q2 saw it blow past analyst estimates for net profit, while notching a more modest beat for revenue (which hit a new record, by the way).

Talk of Apple-like ecosystems and lean operations notwithstanding, RH has done well through old-fashioned moves. These include paring down its business to a more manageable core and steering away from promotions.

I think these actions are sensible, practical, and have improved RH's results. And although Mad Money appearances and Berkshire involvement make the company a bit of a trendy play right now, the stock is still priced quite reasonably when we consider its low PEG ratio. RH looks like a pretty good buy at the moment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.