Target to save 2 billion dollars in costs over two years

“Cost savings of 2 billion dollars over the next two years will fuel Target’s growth and drive profitability,” assured the company Tuesday, when it unveiled its plans to turn around the declining figures the retailer has presented in the last quarters.

The restructuring will be concentrated at Target’s headquarters, further added the company, although it did not offer concise numbers: “This includes the establishment of centralised teams based on specialised expertise and the elimination of several thousand positions over the next two years.”

Additional savings will come in through operations, technology and process improvements; supply chain and sourcing efficiencies, said the company in a statement.

More personalisation and new formats to spur growth

Detailing its “transformation roadmap”, Target executives have highlighted the four main areas of focus:

- Cross-channel approach to “drive a total Target experience across stores, online and mobile.”

- Style, Baby, Kids and Wellness to be prioritised so they “will be the merchandise categories Target is famous for”.

- Increasing personalisation to offer a “more guest-centric experience”

- More new and flexible formats such as TargetExpress and CityTarget, which cater to guests in rapidly-growing, dense urban areas. Throughout 2015, the retailer will open eight TargetExpress locations across the country.

“While we’re in the early days and there’s no doubt that transformation can be challenging, we’re taking the steps necessary to unleash the potential of this incredible brand,” said Target Corporation (NYSE: TGT) Chairman and CEO Brian Cornell. It is noteworthy that Target expects to invest this year between 2 and 2.2 billion dollars in capital expenditures, including a 1 billion dollars investment in technology and supply chain.

Online sales add 40 percent

In a positive note, digital sales growth of 40 percent is expected by the company this year, ahead of the 36 percent growth in the fourth quarter. The department store operator forecast revenue to come in at 2-3 percent this year.

“I’m encouraged by our early momentum, and am confident that by implementing our strategy, simplifying how we work, and practising financial discipline, we will ignite Target’s innovative spirit and deliver sustained growth,” summed up an encouraging CEO, addressing both analysts and investors.

In terms of earnings, Target offered a guidance for FY15 earnings per share (EPS) of 4.45-4.65 dollars, compared to the 4.50 dollars consensus EPS estimate and the FactSet consensus analyst estimates of 2.4 percent and 4.45 dollars, respectively.

As highlighted by ‘Seeking Alpha’, “the outlook is likely to factor in buybacks. On that note, the company says it will buy back 2 billion dollars in shares this year and another 3 billion dollars in 2016.”

The US second-largest discount retailer behind Walmart, rallied late on Tuesday after the Minneapolis-based corporation unveiled the aforementioned 2 billion dollars cost savings plan.

Target is expected to eliminate several thousand jobs nationwide as part of the multi-year Target rebounded to close up 0.41 percent or 0.32 to 78.00 dollars apiece. Volume was 12.5 million shares, close to triple the full-day average of 4.9 million shares, according to FactSet.

On the wake of the news, Jefferies maintained its ‘hold’ rating on Target Corporation (NYSE:TGT). As per the latest information, the brokerage house however lowers the price target to 73 dollars per share from a prior target of 76 dollars.

Equally, Deutsche Bank maintains its ‘hold’ rating on the stock and sets its target price at 77 dollars per share.

The 52-week high of the share price is 78.4 dollars and the 52-week low of the same is 55.25 dollars. With approximately 640,214,000 shares in circulation, the company has a market cap of 49,732 million dollars.

As highlighted by ‘Markets Bureau’, “The shares have outperformed the S&P 500 by 0.22 percent in the past week but underperformed the index by 1.06 percent in the last 4 weeks.”