Chugga-chugga, chugga-chugga, chugga-chugga choo choo! That’s what I think when I consider Target Corporation (TGT) through 2017 and, in fact, over the last few years. The retailer keeps chugging along with various fits and starts and all the while with a share price that has gone nowhere in the last few years. Target “thinks it can” even though its metric performance continues to languish. Target is the epitome of an uninvestable stock when one compares the investment to the benchmark S&P 500. But that doesn’t mean that Target can’t be found and defined more appropriately as a trader’s stock. In 2017 alone, the share price has fallen below $50 and risen above $60. More narrowly, the share price has dipped below $55 and risen above $60 on several occasions that identify meaningful 10% or greater moves for which to take advantage of as a trader. In the last month or so, shares of TGT rose slightly above $63 a share before crashing unceremoniously after releasing its Q3 2017 results and forward-looking guidance. Target is a trader’s stock, nothing more and nothing less. Leaning on the stock’s 4.6% yield when the share price has been discounted by roughly 20% in 2017 doesn’t bridge any gaps in underperformance.
As we enter the all-important Holiday selling season, Target must find itself executing on sales initiatives in an incremental fashion. My characterization of the first major selling day in the Q4 2017 period is characterized in the photograph below of a Target Thanksgiving day sales event.The parking lot was packed, with overflow into the neighboring plaza.
Moreover, one selling day does not make a quarter and my experience shouldn’t be expounded upon beyond the anecdotal by investors and traders alike.
On the surface, Target had a pretty strong 3rd quarter when compared with its peers. Target beat both top and bottom line results whereas its peers largely missed analysts’ expectations in some form or fashion. The standout metric performer for the retailer during the 3rd quarter was of course it’s digital sales growth. Digital sales grew 24% on top of 26% a year ago.
Despite beating analysts’ expectations on top and bottom-line results, shares of TGT fell roughly 10% upon its earnings release. I’m of the opinion this reaction to the earnings release and subsequent conference call was an overreaction to rather subdued Q4 2017 guidance, lackluster in-store sales comp growth, and lump inventory levels year-to-date. While comp sales grew .9% for the quarter against an expectation by analysts of .4% comp sales growth, it is where that growth occurred that concerned investors. Of the .9% comp sales growth, .8% of the growth came from Target’s digital sales platform. That wouldn’t be such a bad or maligned performance for some retailers, but after launching 8 new brands across multiple categories this year, investors may have been concerned that these new brands weren’t resonating with consumers.
I would tend to agree with the investor concerns in this regard, but mainly because this increased new product brand rollout is nothing new for Target. While the brand names and product packaging may have changed to look and feel somewhat new, the reality is Target consistently finds itself rebranding, adding new private label product brands and even product partnerships. The highly touted Hearth & Hand With Magnolia product line from Chip and Joanna Gaines has been the focus of Target and media headlines as of late, but the reality is this is the seventh “tie-up” between an HGTV personality and Target in the last decade. So why is this particular product partnership getting so much attention? That’s marketing folks! And don’t get me wrong; I like the new selection of home goods, I just think for Target, it’s not a game changer or incremental to sales long-term. On the whole and with the many private label brands launched in 2017, undoubtedly the company should witness more lift in store traffic and total net sales. Having said that, more time is needed to analyze a longer sales trend when it comes to the net affect of these new brands.
