TGT and Walmart (WMT) are the two big general retailers serving middle America. Costco (COST) is the third behemoth, but it has a somewhat different concept and a younger, much wealthier customer.
As I see it, TGT is more aggressive/innovative than WMT, has a larger national presence in the US (WMT has been mostly shut out of the northeast and CA) and is somewhat more upscale. (I own TGT but not the others, which also says something about my risk preferences.)
Anyway, TGT reported 1Q23 (ended 4/29) earnings today. My main takeaways:
–sales were flattish, yoy, with eps down slightly
–daily use items (food, household goods, beauty) were strong sellers, discretionary ones (clothing, furniture, electronics) not so much. Put a different way, staples are chugging along, with more business cycle-sensitive items suffering. Not really surprising
–inventories were down by 16%. This is a combination of a rise in daily use items on hand with a 25% fall in stocks of discretionary goods. I find the wording of the press release is ambiguous, leaving it unclear whether these are quarter on quarter comparisons or year on year. The way I read it, what we’re seeing is the last stage of reduction in the massive oversupply of stay-at-home goods TGT had amassed early last year
–the company clearly wanted to highlight the continuing problem of shrinkage–theft of merchandise, including by organized criminal gangs–which TGT expects to be $500 million higher this year than last
As a shareholder, I think the stock will continue to tread water for a while. I’m not inclined to either buy or sell.
As an analyst, TGT and WMT give a good read on how the economy as a whole is doing. Putting this in (my preferred) simple-minded terms, when the economy is bad, consumers trade down to WMT; when they’re feeling flush, they trade up to TGT. WMT has recently made the point that its food sales are booming, which it attributes to more affluent consumers trading down to WMT’s discount groceries.
My simple conclusion: on a net basis, no one is trading up …and lots of people are still trading down, away from drug stores to TGT and from supermarkets to WMT. Shrinkage is also a sign of economic stress. So: no reason to be mega-pessimistic about the domestic economy, but NO reason to amp up any bullish feeling.