The Daily Dose: Target Misses the Mark

 | May 06, 2014 | 9:00 AM EDT  | Comments
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Stock quotes in this article:

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big

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wmt

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amzn

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nke

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The news on Target (TGT) could be summed up quickly: Target culture -- which is to move very methodically -- hindered a parting of ways with a company lifer immediately after an event that caused a material weakness in the business. In truth, CEO Gregg Steinhafel should have been pushed aside coming into the key spring selling season and before starting to set strategies for the upcoming holiday season of 2014 (and even the back-to-school season). The fact he wasn't is a knock on Target's board.

So what could be gleaned from this news?

1. Target's first-quarter sales (focus on traffic here) have not improved much from the holiday quarter despite the company's increased price competitiveness and public outreach to reconnect with customers.

2. Canada, a business that I have chronicled, is in a disturbing state. It has not shown the improvement that has been articulated to investors coming into 2014 (and stressed to me when I last talked with Target).

3. Target's board realizes that it needs an outsider CEO with a global perspective that either immediately addresses Canada's operations so that it demonstrates financial improvement by 2015 or grabs the bull by the horns and follows others that have exited the Canadian market (think Big Lots (BIG).

4. What this means for competitors: Target is now a directionless ship in front of the back-to-school selling season (which begins around July), and it is in a state of general confusion as it prepares to set the usual holiday season attack plan. Wal-Mart (WMT) and Amazon (AMZN), rejoice.

Finally, did you know that Target has incurred $1.4 billion in losses related to its Canadian business since inception?

2 Charts Worth Telling Everyone About

China is really on my mind following the release of a fourth consecutive weak month of manufacturing data Sunday night. Are companies with outsized China exposure set for disappointing financial statements later this year? Does the market currently appreciate that? Do companies need to adjust their operating plans for a slowing China? All worthy questions, and some the market has not fully thought through given the steady state in the charts presented below.

Nike's (NKE) stock is still holding firm despite a good chunk of its business being derived from China. And the emerging markets could feel the knock-on effect should the slowdown of growth spread. See the Nike chart below, with the S&P 500 in green and the Dow in red.

Source: Yahoo! Finance

Then there is Caterpillar (CAT), which, in the minds of many a stock strategist, is back on a stretch of beating and raising earnings estimates as a result of strong operations not related to mining (and continued low expectations). See the Caterpillar chart below.

Source: Yahoo! Finance

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