Target Corporation (NYSE:TGT) has made a name for itself as a shopping mecca for middle-class mothers, but despite the company’s strong brand recognition and solid performance on Black Friday, TGT stock isn’t the best choice for traders looking to add a retail stock to their portfolios.
The big-box retailer will face several headwinds in the coming year, and management’s most recent blunders suggest that shareholders aren’t at the top of the company’s priority list.
Sales Slide
One of the reasons investors should be cautious of Target stock is the company’s failure to deliver on sales figures. Target’s third-quarter figures showed that sales fell 6.7% from the year-ago quarter, and comparable store sales were down 0.2%.
TGT stock rose following its earnings announcement as investors cheered the positive aspects of the report, such as Target’s increased online sales. It’s true that TGT has made big strides toward improving its online presence, but so have some of its better-positioned competitors such as Wal-Mart Stores Inc. (NYSE:WMT).
While Target may make more progress in the e-commerce space, there are better places with fewer anchors to put your money to capitalize on the shift toward online shopping.
Not All Press Is Good Press
Earlier this year, Target very publicly announced it’s new bathroom policy, which allows for customers and workers to use the restroom for whichever gender they identify with. Whether you agree with the policy or not, TGT stock shareholders should be shaking their heads.
Management’s decision to take a firm stance on such a politically-charged, polarizing issue at a time when the retail sector is already challenging enough was a terrible one, and this could have lasting implications on Target’s business.
There’s a reason that Target’s peers such as WMT and TJX Companies Inc (NYSE:TJX) didn’t come out with a restroom policy of their own — every single sale, be it from an ultra-conservative, very religious customer or a liberal LGBT activist, is important. What Target could have done instead was remain neutral to keep from offending anybody.
Now, Target is up against religious groups calling for a boycott, and the company is spending some $20 million to add private bathrooms in order to make customers who are against the policy more comfortable.
While TGT’s inclusive policies may be applauded for their progressive nature, now isn’t a great time for the store to be losing sales and spending money.
There Are Better Choices
Not only are some of Target’s competitors significantly less political, they are also looking much more stable. WMT, for example, is far better positioned than Target when it comes to future growth potential. Both companies are working to expand their online presence as e-commerce continues to gain traction.
However, WMT is also focused on making its physical stores more profitable as well, with new formats and better shopping experiences. Target, on the other hand, has done very little to improve its brick-and-mortar sales and instead has focused on cutting costs and investing in its online arm.
It’s all well and good to jump aboard the e-commerce trend, but the fact remains that the majority of Target’s business comes from physical sales. The company’s online presence will need to grow at a much faster rate to make a meaningful contribution to TGT’s overall revenue.
The Bottom Line
TGT stock certainly isn’t the worst pick out there, but the fact remains that the retail space is a difficult one and many of Target’s competitors are doing a better job coping with the industry’s challenges.
Instead, investors should consider WMT stock, whose growth potential is much brighter, or TJX, which has benefited massively from the inventory imbalances retailers have faced over the past year.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
