Target Missed The Mark, And Its Shares Fell Into A Tailspin

Target Missed The Mark, And Its Shares Fell Into A Tailspin

over 1 year ago2 mins

Mentioned in story

Target announced results on Wednesday that were miles off a bullseye.

What does this mean?

Walmart’s results on Tuesday made one thing clear: shoppers with less cash to splash want everyday groceries at bargain prices. That meant Walmart’s staple items like cheap food and drink – which make up over half of its total wares – were in high demand last quarter. But the same can’t be said for poor Target: the department store chain mainly sells nice-to-haves like clothing and electronics, and savvy shoppers often hold off on buying that stuff till seasonal discounts kick in. That difference showed in the books: Walmart made expectation-beating profit, while Target’s own was much lower than investors expected.

Target stock
Source: Google Finance

Why should I care?

Zooming in: Line your pockets.

It wasn't all bad for Target: the firm’s third-quarter sales at stores open for at least a year were up a better-than-expected 2.7% from the same time last year. Problem is, Target had to slap massive discount signs across the aisles to get folk to the checkouts. Those discounts squeeze the life out of a firm’s profit margins, which – along with the promise of future clearances – pushed Target to admit it’ll fall well short of its profit promises made earlier this year. On top of that, the retailer said it’ll lose nearly $400 million – worth 5% of last year’s profit – at the hands of shoplifters. Now that’s a scapegoat you won't hear often…

Target same store sales
Source: Bloomberg

Zooming out: Nobody knows nuthin’.

You’ll often hear that it’s best to take the long-term view when it comes to stock picking, and that’s partly because markets usually do a good job at predicting and “pricing in” short-term changes. But in times of high uncertainty, the market’s close-range antenna can falter and investors end up caught unawares, causing shock price movements. Your common sense can help you rise above the rest, mind you: it’s hardly surprising that Target would lose customers to cheaper rivals during tougher times, after all.

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