On Wednesday, Target Corporation (NYSE:TGT) CEO Brian Cornell gave an upbeat assessment of his company’s quarterly results. Yet it really did make him look out of touch. It’s as if he still believes the retail business is not undergoing much upheaval.
Well, of course, Wall Street has a different view of things. Note that TGT stock plunged 8%.
But the poor performance has not been a temporary situation. For the past five years, TGT has lost about 13% of its value.
Granted, as for the recent TGT earnings report, there were some silver linings. For the quarter, revenues came to $16.67 billion and earnings were 91 cent a share. The Street, on the other hand, was forecasting revenues of $16.61 billion and earnings of 86 cents a share. TGT also beat expectations with same-store sales. The company reported a 0.9% increase vs the consensus estimate of 0.4%.
But all this could not overcome the guidance for the current quarter. TGT put out a projection of $1.05 to $1.25 per share. While this was in the range of the Street forecast of $1.24, the big concern was the wide range. In other words, it looks like TGT is not too confident for the all-important holiday season.
TGT Stock and E-commerce
Like many retailers, TGT is in the midst of a turnaround. Back in February, the company announced an ambitious plan to refurbish its stores, increase spending on digital and open new stores with smaller footprints.
While this approach makes sense, there are still few signs that it is getting traction. Perhaps the most troubling sign is with the online business. While there was a 24% increase in the latest quarter, the segment is still a meager part of the company’s revenues, coming to about 4.3% of the total. This is up from 3.5% on a year-over-year basis.
But of course, Wal-Mart Stores Inc (NYSE:WMT) has had a much different approach. And it has certainly been getting notable results. Then again, WMT has been bold with its efforts, such as with the acquisitions of Jet.com, Bonobos and ModCloth, as well as savvy investments in companies like JD.Com Inc (ADR)(NASDAQ:JD). The retailer has also been bolstering its massive brick-and-mortar infrastructure, such as with curb-side grocery pick-up service. Oh, and there have been smart partnerships, as seen with the recent deals with Alphabet Inc (NASDAQ:GOOGL)(NASDAQ:GOOG) and Lord & Taylor.
So it should not be surprising that during the latest quarter, WMT’s e-commerce sales soared by 50% in the U.S. No doubt the performance was a key driver for the impressive overall top-line performance.
Bottom Line On TGT Stock
One of the adverse consequences of the heated competitive environment is the pressure on pricing. The latest quarterly report definitely showed signs of this. Note that while the number of customer transactions increased, there was still a drop in the average revenues per shopper.
It certainly does not help that Amazon.com, Inc.’s (NASDAQ:AMZN) Whole Foods has instituted even more price-cutting, ahead of the Thanksgiving holiday. There are also additional discounts for Prime members.
According to Telsey Advisory Group’s Joseph Feldman, TGT is essentially getting squeezed by AMZN and WMT.
This is not to say that TGT is about to implode. The company is still highly profitable and has enormous resources. The TGT stock dividend is also attractive, at 4.18%. And as InvestorPlace.com’s Will Ashworth has noted, there is potential for more aggressive buybacks, especially because the stock is at low levels (with the price-to-earnings ratio at 11X). Keep in mind that there is $4 billion remaining on the $5-billion program for TGT stock.
However, as for a growth story, there is little evidence here. Again, the CEO seems to be operating the company from an old playbook. In other words, do not expect many catalysts to get TGT stock back into gear.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.