In the category of the rich get richer, hip retailer Target (NYSE:TGT) once again exceeded expectations for the first quarter. The Minneapolis-based retailer reported first-quarter earnings of $0.48 per share, which was one cent better than analysts' expectations and 26% better than last year.
Total comparable-store sales (stores open at least a year) increased 6.6%, keyed by a 7.7% advance at Target stores, which was tempered somewhat by a 1.4% drop at Mervyn's. Target Corp. has been rumored for some time to be looking to divest its department store holdings Mervyn's and Marshall Fields. The fact is that its core Target stores make up 87% of its total sales and 93% of its pre-tax profit, so the impact of these other holdings is limited.
I am a firm believer in sticking to what you do best. If that means that Target must sell its lagging Mervyn's interest and hold on to its recovering Marshall Fields stores (which produced 6.1% same-store growth in the first quarter), then so be it.
When I shop at Target, I expect to be enticed by its colorful selection and reachable price points. Somehow, I don't get the same shopping high when I stroll through any of Federated's (NYSE:FD) department stores or even Wal-Mart (NYSE:WMT) or beaten-up Kmart (NASDAQ:KMRT). Target should keep playing to its strengths, then, and supporting the differentiation that draws customers in.
Despite Wal-Mart CEO's worries about higher gas prices taking a bite out of consumers' discretionary income, it appears that many retailers are in line to meet or exceed earnings and sales targets through the end of the year. However, if higher interest rates and gasoline prices start tightening buying power, I would look for effective discounters such as Target to benefit most.
Take aim and shoot over to the Target discussion board.
Fool contributor Phil Wohl spent over 12 years on Wall Street and now concentrates his writing on more fictional characters. He has no stake in any firm mentioned above.
