The coronavirus pandemic has certainly highlighted how quickly consumer behavior can change. Physical retail was already facing substantial headwinds over the last decade or so with the rise of online shopping. But the past two years have only accelerated this ongoing trend.
Not all physical retail died, however, as Target (NYSE: TGT) has proved. The famed general merchandise chain’s 12-month sales of $103.3 billion and net income of $6.8 billion rose 16.6% and 78.9%, respectively, from the period of the previous year. And the company is embracing digital trends to drive growth.
Let’s see if Target is a the best retail stock to own for 2022.
Target has been a surprise winner from the pandemic as its stores offer shoppers a wide range of items, allowing them to complete an entire shopping trip in one place. Comparable store sales, or comps, in the third quarter of fiscal 2021 (ended Oct. 30) were up 12.7% year-over-year. Target’s top five product categories — apparel and accessories, beauty and home essentials, food and beverage, front-line items, and home furnishings and decor — posted double-digit growth.
The company has made significant investments in building its digital capabilities over the years, which is why it prepared and thrived during the pandemic. In 2017, Target announced a $7 billion investment in its omnichannel shopping experience. Previously, in 2015, the company hired Mike McNamara as chief information officer to completely revamp Target’s IT workforce. These strategic moves continue to pay huge dividends.
Orders using same-day services (store pickup, curbside pickup and shipping) increased 60% in the quarter, adding to the 200% growth for this category over the period of the previous year. Additionally, a remarkable 95% of all sales were made by one store during the quarter, improving business efficiency and enabling individual locations to act as hubs, while customers benefit from reduced wait times and greater stock availability.
But don’t assume the in-person shopping experience isn’t important anymore. Target is sprucing up its stores to encourage customers to visit more often. Partnerships to create shop-in-shops with Apple, waltz disney, and Ultimate beauty refresh store layouts and benefit Target by supporting higher levels of customer traffic. This only increases the value proposition of shopping at Target.
Management expects a strong holiday shopping season to support high-single-digit to low-double-digit comp growth in the current quarter. And while the broader supply chain and inflation concerns have been an issue, the company is navigating the environment by expanding fulfillment capacity and inventory assortments.
During the last earnings call, CEO Brian Cornell announced that Target would hire 30,000 supply chain team members. Additionally, he confirmed that absorbing higher merchandising costs to continue delivering value to customers will prove to be the right move.
An attractive valuation
Despite soaring revenues and profits in recent quarters and a share price that jumped 31% in 2021, Target shares are trading at an attractive price. price/earnings ratio (P/E) of just 16.2 at the time of this writing. It’s significantly cheaper than competitors like Costco and walmart, which trade at P/E ratios of over 40. Target’s increased shareholder returns are a generous capital return policy that includes dividend payouts and share buybacks.
Will 2022 be another winning year for Target and its shareholders? I think the company’s continued momentum in digital and same-day purchases, along with its exceptional valuation, make it a screaming buy right now.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.