OK, call me skeptical about Target's (TGT) views and analysis of what produced a dismal -1.1% comparable store sales number as well as an estimate cut of a very big magnitude -- $5.20 to $5.40 goes to $4.80 to $5.20. Considering the previous quarter's big miss, I wonder if that projection is too positive.
Let's start with the overall theme, the "very cautious" consumer, as articulated by CEO Brian Cornell. Target customers seem to be cutting back on spending on pretty much everything, emphasizing Apple (AAPL) products, which were down 20%, as a primary culprit. The company also cited some weakness in grocery items and in the CVS portion of the store, the pharmacy area where you walk in that is now run by CVS Health (CVS) .
Now, if you recall, Target's plan was to catch people at the cradle, through the pharmacy and children's clothes and food, and then work its way up the age train. That makes sense, but I think the excuses really don't cut it.
This retail quarter marked a reversion for many store chains to the good old days. Urban Outfitters (URBN) , Nordstrom (JWN) , JC Penney (JCP) and even Kohl's (KSS) saw lots of good traffic and less discounting, while at the same time having very controlled inventories. That's pretty much the opposite of what Target saw.
Moreover, when you pick apart the problems called out, you find the excuses even more baffling.
Let's start with CVS, which Cornell said on the call had slow sales, "because it takes time" to transition customers. But, if you go over what CVS Health CEO Larry Merlot said recently on his call, the handoff that has created 1667 pharmacies and 79 clinics at Target was, and I quote: "One of our smoothest integrations ever." When asked about the success of it, Merlot said it was so good he wouldn't rule out doing more of these kinds of transactions because they work so well for CVS. How could transitioning customers be a problem, then?
Second, again, if you consider that Target's trying to get mothers to buy children's clothes, you would think that perhaps that's where the consumer is weary. However, go look at the astounding sales of Children's Place, where CEO Jane Elfers continues to increase comparable store sales and just put up still one more very strong quarter.
Men's and women's apparel at Target? Again, is it the cautious consumer? Or is it Target, given that Kohl's talked about the strength in men's clothes and Nordstrom positively crowed about women's apparel.
Teen wear? Did you see those Urban Outfitters numbers? I know they are nowhere near the size of Target, but you had to be impressed with what they are accomplishing.
Appliances? Home Depot (HD) shot the lights out in appliances.
Sporting Goods? Did you listen to the Dick's Sporting Goods (DKS) call? It was amazing. Sporting goods apparel? Same deal.
So, how about this Apple call? If you go back over what Tim Cook said, they had extremely strong sales in precisely what you would expect to sell at Target -- tablets and Macs. Of course, iPhone sales were weak, but are we really shopping for those at Target? No, it's the Apple products that were strongest elsewhere that were down 20% at Target.
Now, I know that there are pockets of weakness with the consumer everywhere, except for when it comes to buying home goods, as Carol Tome, the outstanding CFO noted on the Home Depot call. Home purchases, especially big-ticket, $900 or more purchases, were up 8%. Tome specifically talked about how spending on the house is totally dependent on the improving prices of houses and the scarcity of them plus the turnover, all points that bolster sales that she's describing as multi-year tailwinds. We can't expect Target to turn into a place for professionals, and do-it-yourselfers go to build-and-repair housing.
But we have to reflect on what exactly is Target? It's a supermarket with nothing proprietary. It's a clothing store with nothing proprietary. It's a hardware store with nothing proprietary. It is not even a pharmacy. It's an appliance store with nothing proprietary.
In fact, it's really become something where every aisle can be "Amazon-ed". Every aisle -- at least once you know your size.
We had a position in Target that we exited recently at a, fortunately, much higher price, because we had lost faith in this retailer to be able to offer anything special. It's "expect less, pay more" for these guys now, the opposite of its age-old slogan. There was real momentum when Cornell came in and bit the bullet on Canada. It was a great move.
But now we have to wonder what Target can do next, other than blame the consumer, which is something even Sears Holdings (SHLD) doesn't do, because it mercifully blames itself.
I'm pulling for Target because we shopped there for a while. I liked the small format idea as a place for kids to go when they move into college. I liked the mobile ordering system for busy moms on the way home from work.
But Walmart's (WMT) on to the latter, and the former seems stalled. In the meantime, Target's become carrion for others. In an era where retailers keep getting smarter and smarter about supply chain and execution, Target seems to have taken a step backward, at a loss about what's wrong.
This was the quarter when bricks-and-mortar retail struck back. It was the quarter when very few retailers didn't have something positive to say. I even felt it was a bit like the old days before Amazon (AMZN) rampaged and Walmart started getting its mojo back and the dollar stores became entertaining, even fun places to shop.
Not with Target. It's all about the consumer, the consumer who seems to want to go elsewhere, that is. Target's got a daunting challenge on its hands and really only a dividend to keep you in while the stores turn around. That's a problem, because I don't think it knows how to turn it, and a 3.37% yield may not be enough to entice potential and existing shareholders to wait around until it gets it right.