Kohl’s Corporation (KSS), Target Corporation (TGT): U.S. Retailers – Which One Should You Choose?

Target Corporation (NYSE:TGT) has more than 1,500 stores in North America, from CityTarget to SuperTarget.

First-quarter results did not meet with expectations, which notes the stiff competition Target Corporation (NYSE:TGT) is facing. U.S. segment operating margin contracted 0.6% to 7.5%, whereas operating income decreased 7.5% to $1.24 billion compared to the first quarter of 2012. Moreover, the company is not geographically diversified, which poses more risks due to the dependency on the U.S. and Canadian economy. However, Target Corporation (NYSE:TGT) is eyeing the opportunity to expand in Latin America.

In the longer term, Target Corporation (NYSE:TGT)’s new merchandise assortments, compelling pricing strategy, and efficient marketing should help boost sales. Here I have to mention the P-fresh remodel program, Pharmacy rewards program, and 5% REDcard Rewards program. Moreover, the company made some shareholder-friendly moves as it bought back about $547 million in shares and paid dividends of $232 million.

Most of the revenue for Target comes from retail, which offers a great assortment of products from various brands, including private label. So, a pick up in the economy should push sales up. A smaller percentage of revenue comes from branded proprietary credit cards and although these are important in terms of customer loyalty, they will not make a huge difference.

Conclusion

In general, the industry did not have a great quarter as sales were scarce in a context of low consumer confidence. For this reason, geographic diversification makes Wal-Mart a much safer investment. Its expansion plans reinforce this statement and should provide earnings growth in the long run.

Kohl’s high inventory level remains a major concern, so even though e-commerce seems to be showing some momentum, I am still not sure about this stock.

Target, on the other hand, seems to have good initiatives for the longer term, but its strategy still needs to go a long way until it proves successful.

The article U.S. Retailers: Which One Should You Choose? originally appeared on Fool.com and is written by Louie Grint.

Louie Grint has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Louie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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