Why Not Target - TGT?
Target - TGT - $99 seems like an obvious value stock at 10-12x their earnings power, with a 4% yield to help.
It took me several days of thinking about TGT to decide I was not a buyer even under $100.
In the end I decided I have little interest in TGT’s soft goods business apparel business, which is now 75% their own brands. I think Ross Stores and TJX have grown to be huge companies, because Walmart and TGT have failed in apparel. TGT gives very poor disclosure, but I guess this is still over 40-50% of profits. I would much rather go to Dick’s and find a decent t-shirt, or maybe find one at Ross.
I have never like the TGT’s grocery business, I am a Kroger guy.
Cosmetics and hardline are tricky too, I prefer Best Buy and Kohl’s has shown the difficulties in cosmetics.
That leaves home goods which take up a bunch of space and again Target brands are over 50% of the business. Bed, Bath, and Beyond went bankrupt in 2023 trying to grow home goods.
TGT has not grown any other retail concept, and international is not exciting.
Other than that everything is great.
The only redeeming quality is the balance sheet is in great shape. That will make it easier to restructure, and maybe close some stores.
Visions of JC Penny begin to appear the more I think about TGT. That is harsh, and the grocery business will allow TGT to grind along, but growth seems impossible.
Again, 20 years ago this might have been a value stock I would have liked, but it is hard to turn around a $45 billion market cap battleship when Amazon is giving stuff away.
Online shopping has made this a perilous industry. Not impossible, but perilous. Retail used to be a staple of value investing. Retail is not as bad as newspapers, but it is heading in that direction.
Not much to choose from, with a few exceptions:
Macy’s - M - $14 - this is the name I keep thinking about, the last living dinosaur, I want to believe, under book with a 5% yield, 40% EV/sales, wow that’s cheap, taking share in luxury, basically doing everything right, but China goods are still 25% and that must be a problem, watching carefully
American Eagle. - AEO - $13 - significant tariff issues remain, let’s let the Sweeney stuff die down, maybe, 1.5x book and 75% EV/sales, built some nice store brands they are not getting credit for
Dillard’s - DDS - $534 - really angry I missed at $300 this April, can’t chase over $500
Five Below - FIVE - $142 - I need to learn more, have never been in a store, I don’t get out much
Tractor Supply - TSCO - $61 - brilliant operators, should have bought the first time I walked into a store, can’t chase at 30x, let’s find the next TSCO
Ross Stores, TJX, Burlington - these guys have been the big winners, but cannot chase the stocks at 25x or more
Dick’s Sporting - DKS - $225 - just hate the new larger store strategy
Dollar General - DG - $112 - really bad stories about deliberate pricing errors
Kohl’s - KSS - $14 - maybe I know this story too well, I grew up in their first department store, they need to admit their mistakes and move on, a back to basics strategy might work
Walmart - WMT - $ - 97 - it is actually more frightening that WMT trades at 37x, than it is that NVIDIA trades at 40x