Target Disappoints Wall Street

Alan Penny

15 January 2020

3 min read

  • November/December sales weaker than anticipated
  • Online sales stronger
  • Competitors also showing weakness
  • Is US consumer still strong?

The pre-market release of a Target statement has disappointed Wall Street, coming in much lower than expectations. Because of this, the stock market will have to take a look at whether or not this is an issue that will be seen across retail in general, or if it is Target specific at this point. This earnings situation highlights that the holiday season wasn’t that great for one of the biggest retailers in the United States.

You’re only as good as your last report

Target suffered from the idea that its success from last year would continue forever. This is a mistake that Wall Street makes quite often, and at this point it’s likely that traders will continue to punish this retailer, at least in the short term due to the fact that it missed so much during an earnings call.

On a brighter note, online sales improved 19% from just a year ago

Target’s holiday season came in soft with same-store sales gaining 1.4%, much lower than the 5.7% growth that Target had a year ago. The company had anticipated fourth-quarter same-store sales increasing between 3% and 4%, and the performance that has been seen in November and December suggests that they will in fact miss that metric. Target’s fourth-quarter ends in January, right along with other retailers.

The company spoke about weakness in toy sales, and more surprisingly, electronics. Considering that there wasn’t any major “must-have” gadget or toy this past holiday season it’s not necessarily shocking to see this softness. They also noted that there was a bit of weakness in its home goods departments.

On a brighter note, online sales improved 19% from just a year ago. The company has reiterated its adjusted earnings-per-share guidance of $1.54 to $1.74. Despite the sales miss, they believe that sale strength in higher-margin products and efficiencies in supply will be able to make Target still earn that level of profits. As a reaction, stock markets sold the company drastically in pre-market trading, as Target lost 7%.

Could this impact Walmart?

One of the biggest things that will come from this is whether or not the Street prices retailers a bit differently. After all, Target is one of the “darlings” of the retail sector in the United States, so if it does not perform it will be interesting to see if this has a bit of a knock on effect in places such as Walmart. Furthermore, another thing that could be seen down the stretch is whether or not the lack of spending at Target is an isolated incident or if it is industry wide. If it is industry wide, it puts a bit of a dent into the narrative of the US consumer being strong.

Target is a bit of a bellwether as it isn’t as much of a discount retailer as Walmart is, but it isn’t exactly out of the reach of most consumers. If they continue to slump, this could become a longer-term issue. The competition has also announced same-store sales declines at Kohl’s, Macy’s, and JC Penney. The real thing to pay attention to here is the US consumer, although that attitude can be expressed through retail stocks.

Written By
Alan Penny

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