Income of $1.23 per share of TGT stock topped expectations of $1.12, and was a penny higher than year-ago profit levels. But, revenue fell 8% — to $16.17 billion — and same-store sales fell 1.1%.
While the retailer didn’t provide a great deal of detail on its better-performing or worse-performing categories, CEO Brian Cornell was quick to explain that sales of electronics were down by double digits on a year over year basis, and that a 20% year-over-year dip in sales of Apple Inc. (NASDAQ:AAPL) was the cause of nearly one-third of the sales setback its electronics department suffered.
There’s no denying it’s an ugly comparison. Then again, it’s not terribly surprising. Apple didn’t exactly light it up either last quarter, with revenue down 15% and income per-share of AAPL stock off by 23%. What was surprising is the fact that Target said it was going to be working with Apple (and its other electronics vendors) to “accelerate innovation” of new consumer-technology products….
… as if Target had any value to any electronics maker on the design front.
Get Real, TGT
Normally this kind of commentary would layer some key points on top of one another and then close with a conclusion based on the evidence. Let’s turn things around this time, though, and make it clear from the onset that Target has nothing to say that Apple CEO Tim Cook or any Apple employee cares to bother hearing.
As much as yours truly here loves to beat up on AAPL, I could never deny Apple is not only the technological pace-setter within the industry, but is the innovator everyone else is trying to keep up with.
Yes, the advances made from one iPhone to the next are getting relatively smaller, slowing the upgrade cycle. Saturation is becoming a real problem too. There’s no real “innovation” with the technological leaps.
Still, and as I’ve said before, Apple on its worst day is better than most other companies on their best day. That includes its innovation efforts.
Target isn’t going to tell Apple anything about consumer electronics it doesn’t already know. Indeed, it’s unlikely Target would even be able to tell Apple much about marketing and promotion that it doesn’t already know.
So did Brian Cornell simply speak out of turn, with his comment that the retailer is now “focused on reversing these trends and collaborating with Apple and other vendor partners to evolve our assortment and accelerate innovation to deliver stronger sales.”? Not likely. Comments made in earnings press releases as well as in earnings calls are rather well scripted.
Rather, the comment was arguably made simply because Cornell — like any other CEO — has to put on a game face in the shadow of a lackluster earnings report and offer TGT shareholders as much reason for hope as he can create. It doesn’t necessarily have to be meaningful. It just has to sound meaningful.
Welcome to the perception game.
Bottom Line for Target Stock
In Target’s defense, it may not be its fault that electronics sales were down for the quarter, led by a sizeable contraction in sales of Apple products. As we already know, Apple’s overall sales also slumped. Global shipments of smartphones (all brands) during Q2 were also flat on a year-over-year basis, according to IDC. Rival Best Buy Co Inc (NYSE:BBY) is also backpedaling in terms of revenue and earnings.
While an industry-wide headwind doesn’t make it any easier for owners of TGT stock to digest, shareholders can at least appreciate there are some things beyond the retailer’s control.
To suggest Target is now collaborating and innovating with its consumer electronics makers, however, is misguided at best.
The bigger concern for those who own Target stock may be the possibility that Cornell and his team truly believe they have something to offer on the technology innovation front, yet don’t see the industry-wide headwinds blowing. That’s where Target needs to focus … on winning market share from its competitors rather than pretending it knows better than Apple what consumers want in the way of electronics.
Maybe that’s what Cornell meant, but it’s certainly not what he said.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.