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Target: Keeping My Finger On The Trigger

Mar. 04, 2020 10:21 AM ETTarget Corporation (TGT) Stock5 Comments


  • Target's 4Q19 results were uninspiring, but also largely in line with recalibrated expectations.
  • Margins continued to expand, even though the retailer suffered from loss of operating leverage due to a deceleration in revenue growth.
  • If I were bound by a mandate to stay 100% invested in stocks at all times, I would very likely consider shifting my portfolio towards TGT.
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It could have been worse.

This Tuesday, Target (NYSE:TGT) disclosed 4Q19 results that, following January's disappointing comps pre-announcement, fell largely in line with recalibrated expectations. Revenue growth decelerated to a meager 1.8%, while adjusted EPS of $1.69 fell comfortably within management's November 2019 guidance of $1.54 to $1.74 - despite lack of much top line traction.

Credit: Company's presentation

Mixed results

Regarding revenues, weak comparable performance in popular holiday items was already anticipated. I suspect that the lapping of Toys "R" Us' bankruptcy played a role on the toy side, while potential loss of competitiveness to Amazon (AMZN) and Best Buy (BBY) may have hurt the Minnesota-based retailer in electronics. Apparel and beauty, Target's top product categories in the most recent holiday months, were the bright spot in the fourth quarter. In fact, the company disclosed to have captured $2.5 billion in apparel and beauty market share over the past two years alone, an impressive feat.

In the aggregate, 4Q19 comps ended up being materially softer compared to the recent trend, see chart below. Not even digital sales looked particularly robust. Of course, lapping a very strong 2018 that benefited from Target's early store remodeling efforts and omnichannel investments did not help. But I believe that the company's steady state for the next several years will look a lot more like the second half of 2019 than the comparable six-month period in 2018. My suspicion seems to have been reinforced by management's comp guidance of a low single-digit increase for 2020.

Source: DM Martins Research, using data from company reports

The more encouraging news is that gross margin improved by about 60 bps, still aided by a combination of many factors that included lower product costs, resilient pricing and a favorable revenue mix. An SG&A increase of 2.9% looked reasonable to me, but Target suffered

I do not own TGT because I believe I can create superior risk-adjusted returns in the long run using a different strategy. To dig deeper into how I have built a risk-diversified portfolio designed and back-tested to generate market-like returns with lower risk, join my Storm-Resistant Growth group. Take advantage of the 14-day free trial, read all the content written to date and get immediate access to the community.

This article was written by

DM Martins Research profile picture

Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk.

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Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep.

He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business.

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On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc.

DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks).

Analyst’s Disclosure: I am/we are long AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

Going to be interesting to see the numbers going forward. For the past week or two it’s been busier than Christmas season at Target. At Walmart, shelves emptied daily and now palates are just left in the isle for people to attack like piranhas. Crazy to see.
dunkmaster profile picture
as is the point with soooo many of my oldings...TGT is more than 10% higher at this very moment than it was last August. I think we are stripping off a bunch of green growth. we are not down to the wood yet. I still have some cash!
OverTheHorizon profile picture
Watch your feet.
Seatonmanagement profile picture
Fair points. I'm holding fast.
Goldman Sucks put TGT on their conviction buy list today.

More likely, they (GS) are trying to unload underwater TGT shares.
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