Target (NYSE:TGT), the world’s second largest retailer, is set to announce its Q2 results on August 15. Last quarter, it reported about 6% increase in its revenues as compared to the same period last year. Investors and analysts will closely watch the quarterly results of Target and Wal-Mart (NYSE:WMT) this week as they will give a fair idea about the latest trends in the retail industry and how retail behemoths are coping to adjust with changing customer preferences.
We expect Target’s margins and Canadian expansion plans to be the prime focus on Wednesday.
We have a price estimate of $56 for Target stock, implying a discount to the market price.
Canadian expansion plans
Target, which is gearing up for its first international foray, is leaving no stone-unturned to have a successful roll-out of its operations in Canada. It plans to open between 100 and 150 stores in Canada, primarily in 2013. It has allocated approximately $2.3 billion to convert Zellers stores and integrate them into its retail network in Canada.
According to our estimates, the international operations contribute approximately 8% to Target’s valuation and has the potential to grow further. Investors will be interested to know about the progress on Canadian foray and expansion plans for other geographical regions including Mexico and Puerto Rico.
Margins Remain in Focus
Target’s 5% Rewards loyalty program and REDcard Free Shipping have helped the retailer drive traffic and boost sales. However, these discount programs do impact the margins. The management expects these strategies to impact its gross margins for 2012. Investors will be interested to know how Target tackled margin pressure this quarter.
Credit card segment
Last year, Target was looking to sell its credit card division. However, in January 2012, it announced plans to suspend this as it believed that it was not a lucrative time for the transaction and asserted that it will pursue its sell off plans in the second half of the year. We will be interested to know the update on the credit card division and what Target’s future plans are in this regard.