Target's Comeback Looks to Be Full Speed Ahead, Putting Wal-Mart on Notice

Updated to include comments from Target's CFO on the company's media call.

NEW YORK (TheStreet) -- Target's (TGT) comeback looks to be full speed ahead, judging by its first-quarter results, putting execs at struggling rival  Wal-Mart (WMT) on notice.

The Minneapolis-based big-box retailer reported adjusted earnings per share of $1.10, beating consensus forecasts of $1.02. Target also managed to beat its own earnings forecast, which called for 95 cents to $1.02 a share. But the real story was on Target's sales line, and how it stood in stark contrast to Wal-Mart's in a quarter of mixed economic growth.

Insight from Jim Cramer and Jack Mohr:

Target is a core holding of Jim Cramer's multi-million dollar portfolio. In an alert on Wednesday, Jim Cramer and Jack Mohr, his Director of Research, wrote that:

"We are excited by the strong results amid a difficult retail environment, and believe the shares should be up solidly in today's trading."

Separately, Cramer adds: "I love the digital initiatives and the new fashion styles, especially Pulitzer, which sold out in no time. They are really back to 'expect more; pay less.'"

Want to be alerted before Jim Cramer buys or sells Target? Learn more about ActionAlertsPLUS now.

Same-store sales advanced 2.3%, propelled by a 0.9% increase in the number of transactions at the retailer's stores. The company's limited-time debut of apparel brand Lily Pulitzer in the quarter, which saw a buying frenzy among the brand's fans, helped the retailer's performance in several ways.

"The Lily line showed that if you bring a great product to market, at a good value, you will get a response by consumers," said Target CFO John Mulligan in a call with the media on Wednesday.

The Lily Pulitzer line juiced sales of high margin apparel -- Target's gross profit margin rose 90 basis points year over year. And traffic to the Lily Pulitzer racks sent customers shopping elsewhere in the store after scooping up some Lily. 

One area of strength was organics: sales from Target's "Made to Matter" program of exclusive organic products surged 25% in the quarter.

Robust buying activity stemming from the colorful Lily Pulitzer apparel line highlighted the consumer's willingness to spend some of their savings from lower gas prices at Target. But the keyword is some, not all. 

"Gas prices falling is very good, but consumers are increasingly paying down credit card debts -- they have learned a lot from the last recession," said Mulligan.

Target shares were up 0.9% in midday trading Wednesday.

Unfortunately for Wal-Mart, which is in the midst of making its stores easier to shop and re-training low-wage workers, its first-quarter results were lackluster.

Wal-Mart reported earnings of $1.03 a share, missing analyst forecasts of $1.05. U.S. same-store sales rose just 1.1%, toward the low end of guidance for an increase of 1% to 2%. As with its earnings, U.S. same-store sales missed estimates, as analysts anticipated a gain of 1.4%.

Wal-Mart shares were down 0.6% by midday Wednesday.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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