Can Target (TGT) turn the tide for bricks-and-mortar retail? Today's shocking preannouncement to the upside -- when have you last heard that from a retail chain? --calls into question just what condition stores are really in.
The news is big: positive comparable-store sales, when Target management thought they would be negative. Better traffic, something that we thought couldn't be happening, especially in the era of Amazon (AMZN) Prime. Good numbers in food and fashion -- the former a terrific sign, given how food's been a bit of a bow-wow, although fashion's been a bastion of success for a while.
But, and there always is a but with retail, will Target be alone in signaling things are better? I understand from my behind-the-scenes canvas of retail that things are indeed better. Nevertheless, the question is, will these gains be Target-specific? And if the answer is yes, then it won't help the group.
Worse, one could argue, what the heck is going on at Target that they couldn't forecast correctly? While forecasting up numbers and then delivering down results is the cardinal sin, I have to call into question Target's kitchen-sink approach at the beginning of the year, when it made its downbeat forecast.
We want retailers that have a clear view of the future -- because retail is all about forecasting. You forecast right, and you have the right amount of inventory and the fewest markdowns. You forecast wrong, and you are without enough inventory. I know it's an art, not a science, when it comes to bricks and mortar. It's a science when it is Amazon.
I am adamant that some retailers are doing better than others. The newly aggressive Walmart (WMT) I believe is doing quite well -- and has the balance sheet and the wherewithal to make gutsy moves like buying Jet, which I think is going to work for them. We know Costco (COST) is doing well from their own numbers,.
Yet, the biggest issue for me with retail is a simple one, and it relates to Target's awry forecasting: Will the stocks in this group have a better 2018 than a 2017? With every stock that we own for Action Alerts PLUS, I am presuming that the answer is yes. We would never intentionally own any stock where we believe the company behind it is forecasting down earnings year over year.
The reason Target's stock had been so low is precisely because the company said times will be worse, not better. For the record, the only company away from retail who told me the same tale of woe was Ford Motor (F) when it forecast a down 2017 versus 2016 -- and you can see where that got the forecaster: fired.
Why is the stock of Macy's (M) so low? Simple. We don't know if it will have an up or down year, but the analysts are questioning the possibility of growth. Same with Kohl's (KSS) , Best Buy (BBY) , Nordstrom (JWN) and a host of others.
Now I feel very confident that Costco and Home Depot (HD) will have up years. Then again, though, that's a low bar -- and not one deserving of a super high price-to-earnings multiple.
So while Target's news flash is certainly good for Target's long-suffering shareholders, it's not good enough yet to ignite the group, especially when it was Target that set the low bar to begin with.
We want companies in retail to get to better numbers via innovation, excitement and game-changing acquisitions. Walmart and, yes, Amazon, have done that.
I remain concerned about the group. You can have a trade, but there's still very little to invest in, especially when Amazon is one press release away from destroying any one of these players.