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Target Stock: A Royal Flush

My call for Target’s (NYSE:TGT) stock to experience a sell-off is playing out. Given the current headwinds, I expect this to continue over the next few months. In my last Target article, I pointed out that the stock is likely to get flushed as a result of the company’s bathroom policy which states,

“In our stores, we demonstrate our commitment to an inclusive experience in many ways. Most relevant for the conversations currently underway, we welcome transgender team members and guests to use the restroom or fitting room facility that corresponds with their gender identity.”

Target has faced a boycott from customers who perceive the bathroom policy as inviting people with ill intentions to abuse the policy, thus creating a safety issue for women and children. The perception is that predators could be more tempted by the policy to enter the ladies’ room to spy, take pictures or videos or do something even worse.

The American Family Association [AFA] has organized a boycott pledge in response to Target’s bathroom policy on its website that now has over 1.2 million signers. There are probably much more than 1.2 million boycotting Target who won’t bother to sign the petition. My theory has been that there will be enough customers to boycott Target to cause a drop in same store sales. There was a noticeable drop as same store sales increased only 1.2% in Q1. This was 25% lower than expectations of 1.6% and lower than the 1.9% for each of the previous 2 quarters.

Those who know the game of poker understand that a royal flush is the highest hand that a player can have (ace, king, queen, jack and ten of the same suit). Investors who shorted the stock since my last Target article was written have netted about 16% (as a comparison, the SPDR S&P Retail ETF declined by 8.8% during the same period). So, while Target’s stock got flushed down the toilet, bearish investors have a winning hand with a ‘royal flush’ so to speak.

Read more at Seeking Alpha

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