- Summary: Target's stock (TGT) fell 3.2% in late trading yesterday after the company cut its forecast for July same store sales. It now expects growth of 3-4%, below its previous forecast of 4-6% and last year's 5%. Until now Target has avoided the impcat on consumer spending of higher fuel prices and interest rates due to its more affluent clientele. Wal-Mart expects July same store sales to rise 1-3%, versus 1.2% in June, and claims that customers are making fewer shopping trips to reduce their spending on fuel and are purchasing fewer discretionary items.
- Comment on related stocks/ETFs: Target's reduced guidance for July sales is an important data point for the economy, and will be taken as evidence of slowing earnings by many investors. Although the Retail HOLDRs ETF (RTH) is one of the most oversold ETFs according to TickerSense, Target's guidance reduction should hit the retail stocks -- and thus the ETF -- today. Target's guidance also brings it closer to Wal-Mart's performance, as the WSJ article states. As well as higher gas prices and rising interest rates, a key factor favoring higher-end retailers is the dramatic rise in income inequality in the US. The data and this brief discussion are must-read material for anyone investing in the retail sector. The question for Target is whether it is genuinely immune to these factors. After all, it's not Coach (COH), Sacks Fifth Avenue (SKS) or Tiffany (TIF).
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