Big-box retailer Target (TGT) is another name that's enjoying strong stock performance in 2012. Since the first trading day in January, shares of the $38 billion retail giant have climbed more than 14%, besting the broad market by a big margin. Target has been making some big changes in the last few years, and now it's just starting to show up on the firm's income statement -- the biggest is the introduction of grocery items.
Target is mirroring the strategy at Wal-Mart (WMT) by introducing what it calls PFresh, a grocery initiative that it's been implementing in a growing number of remodeled stores across the country. The idea is that shoppers can find great deals on groceries at Target stores, and the firm can leverage that added store traffic to sell items that boast higher margins.Because grocery is a comparatively low-margin business, one result of Target's initiative is diluted net margins for the whole company, but those lower margins are by design. The margin dilution should generate bigger sales and bigger profits on an absolute level, a welcome tradeoff for Target's management. Target has proven adept at courting a specific niche of big-box shopper. By presenting itself as a slightly higher-end alternative to the likes of frequently panned Wal-Mart, replete with exclusive designers and products, the firm should continue to perform at a high level. Expansion into Canada looks like the other big growth catalyst investors should have on their radar. Target shows up on a recently list of 5 Buy-Rated Stocks Outyielding 'The 10-Year.' I also featured the stock last week in "7 Stocks Shoveling More Cash to Investors."
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