Target Updates: Q4 Profit Falls, International Expansion Plans Going Strong

Target (NYSE:TGT) announced its Q4 results this week. Holiday discounts offered by the retailer to attract customers affected its results, leading to a 5% fall in Q4 profits. Target’s PFresh store remodels and 5% REDcard Rewards loyalty program were the major growth drivers last year and helped maintain positive traffic and growth in comparable store sales. The REDcard program witnessed an impressive increase in penetration from 5.9% to 9.3% yoy. Target’s full year outlook for 2012 is above analysts’ estimates. Investors responded positively with the share price witnessing a 3% increase on the day of earnings release.

Target recently announced that the majority of its Canadian stores will have a Starbucks (NASDAQ:SBUX) licensed outlet as the popular coffee chain has proved to be a good complement to its U.S. stores. There are approximately 1,100 Target stores with Starbucks licensed outlets within the U.S.

According to our estimates, the international operations presently contribute approximately 7% to Target’s valuation and has the potential to grow further. Target is also looking to enter other geographical regions including Mexico and Puerto Rico. The company is making sure its first international foray is a success as that would act as a base for its future expansion plans.

According to reports, Target’s team based in India will support its Canadian expansion plans. Target operates a Bangalore office with around 2,300 employees. The India office will provide business intelligence and marketing support services, such as the design creation for stores and the layout of shelves. The team will also play a key role in determining how Target’s merchandising team interacts with vendors and books orders. ^[1]

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1. See: US Retailer Target Corp’s Bangalore Centre to Help in Maiden Overseas Foray in Canada, The Times of India [↩]