Can Target succeed in the e-commerce game?

Objective (NYSE: TGT) reported second quarter results which easily beat estimates and ended the bumpy trend that some retail stocks had created last week. The company has had an excellent first half of the year and has allowed the retailer to raise its full-year guidance. Comparable store sales increased 3.4% in the second quarter. The manner of these sales is even more encouraging because Target has managed to attract more consumers to its stores. Traffic increased by 2.4%. The company noted that same-day fulfillment services such as Order and Collect are a strong part of the company’s business. Walmart (NYSE: WMT) has a similar initiative and I believe this is very much the future of brick and mortar. If you can shop online and then pick it up, you’ll bring it to the store and increase the chance you’ll stop by; hence the increase in traffic.

What I really like about Target is how they balance brick-and-mortar growth while also providing an ever-expanding online presence. Like many retailers, Target has been forced to innovate and adapt to changes in the retail industry and has focused on keeping market share away from Amazon (NASDAQ: AMZN) increasing your online presence. Currently, Target appears to be adapting well to this change. Sales of digital solutions in the second quarter increased by 34% compared to comparable data. Achieving this type of growth online while also increasing in-store sales shows that management understands the market and is doing well.

Target’s operating income rose a whopping 16.9% to $1.32 billion in the quarter. This resulted in a net profit of $938 million. This means an increase of 17.4% year on year. Target’s share count is declining, leading to a 22% increase in earnings per share to $1.82 per diluted share.

Target store in Lino Lakes, MN. Image source: Cel

Breaking the trend

I see two companies that are successfully bucking this retail unrest trend; Walmart and Target. For me, Walmart is one of the best barometers of consumer sentiment. Walmart beat expectations last week and delivered a 2.8% increase in same-store sales, while increasing online sales by 37%. From a sales standpoint, Target has outpaced Walmart’s growth rate. That says something.

Target makes its strong case. From the development of the Internet, through the same sales trends in stores, to introduction of own brands, Target is preparing for the future with a sustainable approach that appeals to different types of consumers. The balance sheet is solid, and a strong first half of the year caused Target to raise its full-year outlook. Target forecasts full-year GAAP earnings of $5.90 to $6.20. From a conservative perspective, this represents an increase of 2.6% compared to the previous guidance. $5.90 per diluted share would also represent a 7.1% increase over year-ago full-year earnings of $5.55 per share.

Time to buy?

In retail, I think it’s wise to stick to larger brands with lower prices. The stock is up 19% this morning and the stock is trading at approximately 17.3x the low end of full-year guidance. It’s a little more expensive than some retail brands, but not expensive at all when you consider the boost that Target provides. Is it time to buy?

If we see more market volatility over the next year (and I’m sure we will), Target may offer cheaper buy-in points. Given Target’s demonstrated ability to successfully drive e-commerce sales while successfully driving store traffic, I rate Target a Buy. It would simply make more sense to wait for a better entry point rather than chasing the stock after persistent highs.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. DavidButler has no position in any of the companies mentioned. The Motley Fool owns and recommends shares of Amazon. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com