Target Corporation (TGT): Rewards Program, Canadian Expansion and E-commerce initiative will be the Growth Driver for This Stock

Target Corporation (NYSE:TGT) has reported a marginal decline in same store sales growth, citing the prolonged winter season and the increase in payroll tax rate. Despite this, the company has achieved a higher Gross Margin and EBIT than the consensus estimates expected, propelled by the category improvement along with the 20 bps improvement from the vendor agreement changes. Management has downgraded its annual guidance, citing sluggish a economic recovery. However, I remain bullish on the group based on its Canadian expansion plans, strong product offerings, its RedCard reward program, and an increase in e-commerce business. Below, I will analyze the strategy mentioned to support my argument.

RedCard and Pharmacy Reward Program will drive the customer to Targets

The RedCard and Pharmacy Reward Program, which provide 5% discounts, have been attracting higher number of customers to the stores. Customers in the reward program have been spending about 50% more than usual. These reward programs have also helped the company to attract new customers, which will help it gain consistent revenue and profit growth.

Canadian expansion will help the company boost its top line and bottom line

Target Corporation (NYSE:TGT) started operation of 24 stores in Canada in the first quarter of this year. The initial response from the Canadian guests exceeded the street expectations. The gross margin for its Canadian business was 38% significantly higher when compared to 30% for the US market. The company is on track to open 124 stores in the Canadian market. By the end of this fiscal year, the capital expenditure for the opening of new stores will be offset by the profit from the Canadian market.

E-Commerce initiative will help increase online sales

Target Corporation (NYSE:TGT)’s e-commerce business has increased 15% during 1Q FY13. The company has collaborated with Google and eBay for testing its one-day delivery program. If the result from this is positive it will help Target’s direct to customer channel.

The company has also acquired two e-commerce companies–ChEFS Catalog and Cooking.com–in the kitchen and cooking categories, which will help it expand its presence in these two segments. It is also planning to launch online buying service where customers will order online and can pick in stores. Based on the success of a similar program at Wal-Mart Stores, Inc. (NYSE:WMT), this will help Target Corporation (NYSE:TGT) improve its comparable store sales.

Other e-commerce initiatives includes Target Corporation (NYSE:TGT)’s newly launched discount website, Cartwheel, in collaboration with Facebook. This has been an instant hit as thousands of customers registered for this, and about 10% have already redeemed some offers.

New product offerings will help bring more customers to stores

Target Corporation (NYSE:TGT) has been known for its innovation in merchandise. It provides limited but exclusive offerings in partnership with various designers and famous celebrities. The company, based on its past success with this innovation, has tied with more designers and personalities. Target Corporation (NYSE:TGT) is using the same strategy in Canada. It has partnered with Roots Outfitters, which provide stylish and crafted line for men, women and children. The initial response from this initiative has been positive.