"The company has had a successful holiday thus far and continues to out-comp Wal-Mart, as strength in entertainment, seasonal, and electronics has offset disappointing toy sales," says the report, whose primary author is analyst Robert S. Drbul. Senior management attendees at the meeting included Bart Butzer, EVP stores, Target Stores; Gregg Steinhafel, president, Target Stores; Jerry Storch, vice chairman; and Doug Scovanner, EVP and CFO.
The report cites an "impressive" 3.2% November comp, and "on-plan" performance month-to-date in December, as evidence of Target's success during the current all-important Christmas season, though it doesn't attribute the good numbers to an extra oomph of a particular must-have item. Unlike last year, when digital cameras were the Christmas rage, there doesn't seem to be anything quite like that in 2004.
More specifically, the report notes Target's strengths and weaknesses across the sales floor. "Wal-Mart's recent, well-publicized price cuts were only on specific items, and Target has moved to match prices on those items," the report says. "Target noted that toy sales have been soft thus far this holiday season, but have been offset by strength in entertainment, DVDs, holiday/seasonal, and electronics. Also, apparel sales have been strong, led by ready-to-wear and shoes. Isaac Mizrahi product continues to experience double-digit growth."
Looking ahead, Lehman's Drbul predicts that a number of initiatives will help Target drive sales next year. For example, the company is planning a new, in-store home initiative beginning in late December called "Global Bazaar," which will run about six weeks. This merchandising effort will feature a selection of goods made in various parts of the world--many of them not often encountered in the day-to-day world of big box shopping, where East Asian-made goods predominate--including Africa, India, South America, and Europe. The items will include tabletop, pillows, lighting, wicker, bath, furniture, and decorative accessories. Also, in the spring Target is re-launching home products under its licensed Fieldcrest label, as well as doing a launch called Isaac Mizrahi Home in bed and bath, the goal of which is to leverage on the success of its Isaac Mizrahi apparel label.
Over the long term, Lehman sees continued expansion—an already large Target will be very large indeed in the future. "The company is poised to generate 15% annual average earnings per share growth over at least the next five years, driven by 4% to 5% comp-store sales growth and annual square footage growth of 8% to 10%," the report says. "With 1,313 stores at the end of 3Q04, the Target Stores segment is still only approximately 40% the size of Wal-Mart's U.S. operation, and we believe that the segment has considerable opportunities for continued expansion over the next 10 years. The company has the opportunity to double its current store base in the United States."
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