Playing the Retail Blame Game

 | Apr 17, 2013 | 9:00 AM EDT
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I warned last week about the imminent first quarter retail blame game and suggested Wal-Mart (WMT) and Target (TGT) were the most likely suspects. Yesterday, Target kicked off pre-earnings retail season with a guide down.

Comps are now expected to be flat, the low end of 0-2% guidance. The comp and earnings per share guide down was met with an "ehh" reaction from the street. After all, investors suspected guidance was too optimistic as it assumed an acceleration in the business based on the 2-year stacked comp (not sure the logic of setting the bar with a high reach post the fourth quarter)?

Overly-optimistic guidance aside, there are plenty of other excuses to dish out in the first quarter-- namely, the weather. After a less than inspiring holiday followed by a first quarter guide down we can only wonder when investors will stop giving out free passes. We know Canada is an opportunity but it will be some time before there is clarity on the sales part of that equation.

Investors will have to count on PFresh, Target's grocery line, and 5% Rewards to drive the business. So far, those initiatives have not been enough to save the day. With the stock up 16% year to date, it would seem logical that when Target runs out of external blame (weather, taxes, refunds), the stock may run out of steam.

All eyes are now on Wal-Mart. If the higher-end Target customer can't get it done, I can only come to the conclusion that WMT's overly optimistic comp guidance for the first quarter is at risk as well. Like Target, Wal-Mart gave us some disappointing fourth quarter comp numbers (traffic turned negative), and at the same time issued guidance that implied an acceleration in the two-year trend for the first quarter. In addition to the usual suspects (weather, taxes, Easter shift), don't underestimate the promotional stance at the dollar stores. Every bit of pressure counts.

Some rogue emails preceding the fourth quarter earnings release lowered the bar and actually set the company up for a sigh of relief (emails implied things could have been much worse).

Someone better start typing..



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