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... rice to revenue ratio more than doubled since 1995 when it was only. 23. Target Corporation has been very efficient, which reflects a return on equity of 20. 2 % in 1999 compared to 9. 9 % in 1996. Inventory turnover was relatively low at 6. 3 in 1999. It is one of Targets main areas of concentration. Profitability can be seen by comparing net profit after taxes to net sales resulting in a net profit margin of 3. 5 %.
In 1999 Target Corporation also displayed a gross profit margin of 31. 7 %. The liquidity is displayed using the current ratio and the quick ratio. The current ratio of 1. 1 has decreased since 1996 when it was more favorable at 1. 4. The quick ratio also decreased by only one tenth of a point from. 5 in 1996 to. 4 in 1999. Additional ratios are presented in Appendix A Target Corporations operational strategy is to offer high-quality fashionable merchandise at affordable prices. It plans to achieve a future of strong growth in revenues and earnings by looking toward new store growth in Target, the primary segment.
One of its functional strategies is to reinvest $ 2. 5 to $ 3 billion in the business with a combination of capital investment and share repurchase. It plans to open 80 new stores and expand its reach to consumers by entering two new markets in West Virginia and Connecticut. Another strategy is to increase capital expenditures to continue remodeling programs for the existing divisions of Target Corporation. Suppliers are crucial part of the product distribution process. One strategy Target plans to continue using to promote good relations with suppliers is acknowledging excellent performance from vendors. Another strategy for Target Corporation to compete with larger retail stores is to focus on a more upscale customer, which will create a unique capability in the retail sector.
In its plan for the future, Target Corporation plans to focus efforts for success on the major division, Target. The smaller divisions will be used to provide cash flow to improve Targets growth. Corporate strategy also includes anticipating new opportunities and acting promptly to adapt to change when the need arises. Target Corporation will have to continue to invest and use its resources efficiently to carry out its strategies. Target Corporations core strength is its variety of retail stores, which provide exceptional value and variety to its customers. Among the value chain components, technological development has been a great asset to the company and employees.
Target implemented an online business and professional skills training course program in 1999. The program is available nationwide to about 1, 200 information technology personnel. Employees can be trained online in leadership, team building, workplace communication, sales, marketing, and finance. Technology has really improved marketing, sales, and customer service. E-commerce can improve the companys customer relations in many ways. It will not only serve as another channel for selling merchandise, but has already increased guest services and can reach a wide range of consumers.
Targets recent alliance with AOL helps introduces new customers to the Target brand. Target Corporation constantly works on enhancing the shopping experience for consumers in the stores. It is building stronger relationships and customer loyalty through more personalized selling and enhanced customer loyalty programs. It is committed to newness and fashion in the product assortments presented in an exciting store environment. Target has recently expanded its customer relations with all of the credit programs it has to offer.
The company has the second largest credit portfolio among retailers that issue store credit cards. Credit card numbers continue to rise and have already exceeded 30 million guest cards. Customer loyalty programs help build stronger relationships with consumers and increase patronage. Target uses its credit program to help promote community involvement by donating 1 % of all purchases made on the cards to local communities. Target Corporation currently does not have very many weaknesses.
Its growing profits and earnings per share are spelling out success for the company, and its objectives are being met. Target stores are surging, but its department stores and Mervyns do not have the same appeal to customers. Marketing strategies for those two divisions are weak and the company will need to make them more appealing to consumers for them to continue to make profits. Target Corporation is the fourth largest retailer after Wal-Mart, K-Mart, and Sears, so the company must make sure it is taking advantages of any opportunities to increase its market share. Target must also promptly address threats that may affect future earnings of the company. Although the company has began introducing new product lines and offering a wider variety of products, the company needs to focus on more customer loyalty and creating new ways to present its products to gain more of the market share.
The main issue facing Target Corporation is what it should do with its department store and Mervyns divisions. The company has considered closing or selling the divisions several times over the past few decades. Although both divisions continue to make a profit as shown in Exhibits 2 and 3, the company could be better off focusing all of its attention on the Target stores. On the other hand, maybe the company needs to take a different approach with the divisions and try to make them more successful to generate greater profits. The main reason for the problem is that the divisions are too separated from one another and work as separate companies rather than one team.
Target claims that the continued growth of its divisions are key contributors to its overall strategy. It actually has strategies for each division, all in somewhat different directions. Its department stores are trying to focus on stronger commitment to newness and fashion products in its assortments. One way it is reinventing the shopping experience is through events like the Paris Flea Market and our popular "Fash Bash" fashion shows. Marketing initiatives for our Department Stores will continue to reinforce the strong brand heritage of our stores. Some of these new changes are leading to increasing costs in merchandise and employee training.
Over the last three years, Mervyn's has added more than 125 national and market brands to the sales floor. In 1999, it made a more concentrated effort to let it customers know about its new brands. Again the company had increasing costs in attempt to meet the demanding needs of the customers. Target stores had still a different approach, but it had much more success. Its primary growth comes from new store expansion. Target continues to open stores in new U.
S. markets; the more it opens, the more profit it generates. As stated earlier, of the three divisions, Target alone generated about 78 % of the revenues with $ 26, 080 million in sales. Mervyns produced about 12 % while the department stores accounted for 9 % with sales of $ 4, 099 million and $ 3, 074 million respectively. The revenues from Mervyns and the department stores have remained fairly consistent over the last five years with minimal increases from the department stores segment and minimal decreases from Mervyns. These two divisions are dragging target down.
The amount of resources that could be added to Target if the company did not have to strive to keep the other two divisions profitable could really add to Targets success. Target is easily the strongest part of the company and needs to receive the majority of research and development. Currently the other two divisions are receiving much of the R&D and possibly holding back Targets growth. Target Corporation is going to have to sell its department store and Mervyns divisions if they do not show significant improvements in next year after the new strategy goes into affect. These two divisions are holding Target back and depleting some of its much-needed resources. In the short run the other two divisions are going to start conducting business in the same fashion as the Target stores.
They will use similar purchasing, inventory control, and marketing techniques. Target has been very successful using these practices so it is time to see if it will work for the other divisions. This new strategy should work better than what the company has been doing with its smaller divisions. The two divisions have been making a profit but not enough to justify all of the cost. If after a year the new strategy, which is making the other two divisions more like the target division, has not produced more profit for the company, it will be time to either sell or close the companies. Target would much rather sell the companies, but that can only happen if another company is willing to buy.
This solution was derived from the fact that Target alone generated about 78 % of the revenues while Mervyns generated only 12 % and the department stores accounted for 9 %. If it is found after a year that the smaller two divisions cannot generate more revenue, Target will begin receiving all of the resources that had been going to the other businesses and turn it in to greater profits. The changes will be implemented immediately with a new advertising campaign to make the consumers aware of the changes. It will let consumers know that the department stores and Mervyns will not appear to change, but they will be run more efficiently. The actual changes in the business will not change much, and those employees will not need much training.
The upper level management will have to make the changes to make their companies operate more like Target. These changes will generate more costs at first. The funding will come from internal sources and marginally increasing debt. The goal for the new change is that within a few months the change will be in full swing. After a year the companies should be making not only more revenue but also more profit. Unfortunately, if the changes do not work as planned, Target Corporation will not be able to keep the businesses.
The downside to that situation is that undoubtedly many jobs would be lost and it may take Target Corporation a few years to adapt to the changes. In the long run it would be better for the company. Obviously it would be far more beneficial for the company if it were to find a buyer for all or some of the companies rather than just closing them. (dollars in millions) 1999 1998 1997 Pre-tax Segment Profit $ 2, 022 $ 1, 578 $ 1, 287 Retail Square Feet 102, 945 94, 553 87, 158 In thousands, reflects total square feet less office, warehouse and vacant space. (dollars in millions) 1999 1998 1997 Pre-tax Segment Profit $ 205 $ 240 $ 280 Retail Square Feet 21, 635 21, 729 21, 810 In thousands, reflects total square feet less office, warehouse and vacant space. (dollars in millions) 1999 1998 1997 Pre-tax Segment Profit $ 296 $ 279 $ 240 Retail Square Feet 14, 060 13, 890 14, 090 In thousands, reflects total square feet less office, warehouse and vacant space. Last 5 Years This Year (Jan 01) Next Year (Jan 02) Next 5 Years Price/Earn (Jan 01) PEG Ratio (Jan 01) Target Corp RETAIL-DISCOUNTS&P 500 25. 9 % 15. 8 % 9. 1 % 16. 3 % 19. 6 % 14. 0 % 15. 3 % 18. 8 % 8. 6 % 15. 1 % 18. 0 % 12. 8 % 19. 616. 725. 0 1. 200. 851. 79 Valuation Ratios Company Industry Sector S&P 500 P/E Ratio (TTM) 22. 34 43. 30 35. 46 39. 05 P/E High - Last 5 Yrs. 34. 42 55. 23 51. 95 49. 82 P/E Low - Last 5 Yrs. 14. 02 16. 06 16. 43 16. 88 Price to Sales (TTM) 0. 80 1. 54 7. 19 8. 50 Price to Book (MRQ) 4. 49 8. 80 6. 33 10. 21 Price to Tangible Book (MRQ) 4. 49 13. 07 9. 91 13. 86 Price to Cash Flow (TTM) 13. 10 29. 34 21. 73 28. 14 Price to Free Cash Flow (TTM) 109. 03 14. 01 50. 35 47. 26 % Owned Institutions NM 47. 78 43. 63 57. 86 Dividends Company Industry Sector S&P 500 Dividend Yield - 5 Year Avg. 1. 20 0. 84 1. 12 1. 12 Dividend 5 Year Growth Rate 7. 39 13. 68 1. 35 8. 84 Payout Ratio (TTM) 14. 59 14. 87 14. 19 23. 12 Financial Strength Company Industry Sector S&P 500 Quick Ratio (MRQ) 0. 35 0. 23 1. 40 1. 25 Current Ratio (MRQ) 1. 22 1. 14 1. 91 1. 76 LT Debt to Equity (MRQ) 0. 87 0. 64 0. 83 0. 55 Total Debt to Equity (MRQ) 0. 96 0. 82 0. 95 0. 83 Interest Coverage (TTM) 6. 08 8. 73 4. 95 10. 48 Profitability Ratios (%) Company Industry Sector S&P 500 Gross Margin (TTM) 31. 81 24. 34 40. 20 50. 31 Gross Margin - 5 Yr. Avg. 29. 21 23. 62 38. 08 48. 09 EBITD Margin (TTM) 9. 55 8. 32 18. 39 23. 10 EBITD - 5 Yr. Avg. 8. 23 7. 75 14. 85 21. 03 Operating Margin (TTM) 5. 86 5. 88 8. 85 18. 42 Operating Margin - 5 Yr.
Avg. 4. 17 5. 29 7. 88 17. 13 Pre-Tax Margin (TTM) 5. 86 5. 79 10. 19 17. 59 Pre-Tax Margin - 5 Yr. Avg. 4. 17 5. 19 6. 69 16. 80 Net Profit Margin (TTM) 3. 59 3. 63 2. 47 13. 38 Net Profit Margin - 5 Yr. Avg. 2. 55 3. 23 0. 79 10. 27 Effective Tax Rate (TTM) 38. 75 37. 10 37. 95 34. 63 Effective Tax Rate - 5 Yr. Avg. 38. 77 37. 52 38. 40 35. 54 Bibliography: Bibliography Anderson, Linnea. Retail and Wholesale Industry. 2000. web (7 July 2000).
Beam, Henry, and David, Fred R. Dayton Hudson Corporation 1998. Strategic Management Cases. Upper Saddle River, New Jersey: Prentice Hall, 1999. Coulter, Mary K. Strategic Management in Action.
Upper Saddle River, New Jersey: Prentice Hall, 1998. Market Guide Inc. Ratio Comparison. 1999. web (10 July 2000).
Target Corporation. Annual Report 1999. 2000. web (7 July 2000). Yahoo! . Earnings Growth. 2000. web (10 July 2000).
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