Target Corporation (NYSE: TGT) is a discount store that operate almost entirely in the United States (it has plans to expand into Canada in the next couple of years). The company began life as Dayton's, but by the 1960s the Target name was had been launched and the company had begun to expand beyond its home market (Target.com, 2012). Today, Target operates two business divisions -- retail and credit card (Target 2010 Annual Report). The company's sales by product category are as follows: Industry

Target competes broadly in the retail industry and more specifically in the discount retail industry. The retail industry, according to the U.S. Census Bureau was $4.13 trillion in size in 2009 (Farfan, 2011). That year, Target had sales of $65 billion (MSN Moneycentral, 2012). While this is just 1.5% of this highly-fragmented industry, Target is still one of the largest companies in retail, albeit well behind #1 Wal-Mart. The high degree of fragmentation in the industry belies the dominance of a handful of firms in the sector in which Target operates. Wal-Mart and K-Mart are direct competitors, Costco is a close competitor in another segment (discount stores) and so are category killers like Home Depot and Lowe's and online giants like Amazon.

The retail industry in the U.S. is driven in large part by consumer spending, and this in turn is affected by a number of macroeconomic variables. The unemployment rate is an important driver for two reasons. The first reason is that the more unemployed people there are, the less money those people will have to spend. This will naturally have a negative impact on retail sales if the unemployment rate goes up. The second reason is that the trend in unemployment has an effect on consumer confidence. If the unemployment rate is rising, people naturally begin to wonder if they will be next to lose their jobs, and will start reducing discretionary spending as a result. This can help to explain, for example, why Target's sales have been increasing in the past couple of years, even though the unemployment rate has been persistently high. Even with a high rate, if the rate is not getting worse, consumer confidence...

As real estate activity decreases, people are able to save more by delaying purchases, or they simply do not need to make large purchases.
Competitors

Target's competitors are in general strong, well-capitalized firms. Most of the companies against which Target competes share the same competitive advantages that Target has with respect to substantial market size, high levels of buying power, extensive market reach, and strong brand recognition. Most competitors also have strong balance sheets as well. In general, Target is a medium-strong competitor in this industry, although it should be noted that still makes Target one of the better-run companies in the United States. They are simply competing against the best of the best in firms like Wal-Mart, Costco, Home Depot and Amazon.

Financial Performance

Financially, Target has been relatively successful. In fiscal 2011 (basically calendar year 2010), Target earned net income of $2.92 billion on revenues of $67.39 billion. Both figures represent a high-water mark for the company over the past five years. Target has a reasonable balance sheet, if not a strong one. The company has $15.6 billion in long-term debt and $15.48 billion in equity, meaning that the company has a relatively high degree of leverage. In terms of cash flow, Target's cash flow from operating activities was $5.27 billion in 2010, down from $5.88 billion in 2009. The company also spent much more money than usual retiring stock, something that often occurs when a company feels that the stock is undervalued.

Part II Financial Analysis

Like most retailers, Target faced a challenge in the late 2000s with the economic crisis. High consumer uncertainty, job losses and higher savings rates resulted in suppressed consumer demand, and companies like Target suffered…