TGT reported surprisingly strong earnings yesterday. To me (I’ve held TGT shares for a long time and have been buying more over the past few months), this signals two things:

–the company is finally through the whopper of an inventory mistake it made during the pandemic–that is, its big bet that demand for stay-at-home consumer electronics and computers… would stay strong for much longer than it did. I don’t know the details, but I imagine this was a combination of too much unit volume and overpaying (like paying high freight charges for faster dellivery and waiving the right to return unsold stuff). In any event, inventory is, at last, back to normal (or close enough that it’s no longer an investment issue).

–more important, I think, is what it may signal for the economy as a whole. As the business cycle ages and the economy begins to flatten out or contract, consumers respond by changing the venues where they do most of their shopping. Generally speaking, high-end consumers shift down to TGT. TGT customers shift down to Walmart (WMT), WMT customers to the dollar stores, and dollar store customers to less expensive retailers who fly below Wall Sreet’s radar.

When the economy begins to recover, which is where I think we are now, consumers reverse course and return to their good-times shopping venues. My guess is that this is what TGT’s January 2024 results are signalling.

Typically, this is a signal to dump the dollar stores/WMT and buy TGT and the higher end. I held onto my TGT and moved more into semiconducters instead. So I’ve had no lower end to shift out of. Had I done the conventional thing as recession loomed, however, the shift up would clearly be the move to make, I think.

One other thing. I’ve just bought a small WMT position. Yes, this runs counter to what I’ve written above. Mostly, it’s the Vizio purchase that interests me. I also just bought a Canon lens from WMT online–it was about $200 cheaper than the next cheapest alternative. …not much to go on, but it suggests to me that the WMT management may no longer be as sleepy as I’ve thought. If so, earnings growth may not soften as much as the consensus expects (or at least should expect).