Target Corporation (NYSE: TGT)
On Wednesday, shares of Target traded lower as the big retailer posted mixed earnings. Which is bad enough as it is for a retailer, but things quickly got worse when it also slashed forecasted sales for the next quarter as well. This drop in sales is not surprising at all considering retailers have been having a rough year thus far. Consumers are more about buying cars, and homes. They have been avoiding shopping for apparel, which is the main source of revenue for retailers. It had been a rough two days after TGT reported earnings. It’s share price had fallen 7% on the day earnings were announced, and then another 6% tumble the day after. Which is bad news considering that target had been up 1.3% for the year one day before earnings were announced.
Mixed But Almost Broken
First quarter earnings for Target did quite well with a huge beat. TGT reported first–quarter earnings per share of $1.29. This was much better than the $1.19 EPS many analysts were expecting. So with a huge beat in earnings why did the stock tank? There are two reasons why TGT stock tanked so much after earnings. One, the company completely missed its revenue number. Analysts had expected TGT to post revenue of $16.20 billion, instead it reported $16.31 billion. Sluggish consumer sales have been lingering. TGT claims it is issues with weather, and consumers being in an environment where they don’t want to spend as much. Secondly, it reported that it would have to slash its forecast for second quarter sales. TGT believes that because of a possible continue in slowdown of demand, sales for next quarter could be worse. It predicts that sales will either be flat or down by 2%. As can be imagined, it is never a good thing when a retailer guides down for the following quarter. This is like a warning to investors that things will quickly get worse before they get better. What more is there to say but the fact that at least Target did pretty well considering all other retailers posted poor results all of last week. Big retailers that posted poor results last week were: Macy’s, Kohl’s, JC Penney, and Nordstrom.
Target being a retailer is bad enough as it is with all the consumers holding back on spending habits. But to make matters worse TGT has incorporated policies which have seen a huge backlash against the company. On April 19, TGT had announced that men claiming to be women would be able to enter whichever bathroom they wanted to. In addition, they could also go to any dressing room they liked. There was a huge backlash against this policy. Matter of fact, there were around 1.2 million signatures collected petitioning this move by the CEO. Analysts believe that such a move probably lowered sales. It is highly possible that this issue could continue to put undue burden on the company’s bottom line going forward.
Outlook Looks Grim
As of now Target has a lot of work to do in order to improve its business. Having problems with consumers about bathroom policy issues isn’t going to help the retailer in the long run. This new transgender policy not only may have hurt sales, but it has also chopped a huge chunk of share price of TGT. Target’s share price has fallen more than 20% from $84 per share to $67 per share. That loss occurred right after TGT started to impose the new transgender bathroom policy. The company may need to rethink its strategy, because things may get worse. If it doesn’t find a way through this retail blunder, it will continue to drop in sales.
From AO Markets