TGT - Target

[Viking]

Does anyone have an opinion on Target. I have not followed the company and being Canadian am not very familiar with their business (upscale Walmart?).

 

Are they in the same league as WMT or CSCO (in terms of business model and management team)?

Are they a top tier retailer?

 

My quick and dirty analysis says the company is cheap; in the near term, due to the investment being made in Canada and aggressive remodelling of existing stores, earnings growth will be lower (next two years) and then should ramp up significantly. Sentiment is pretty poor.

 

2010 EPS = $3.86 (was $4.00 but $0.14 was one time tax gain); Jan is fiscal year end.

2011 Est EPS = $4.25; mgmt in Feb guided to 10% increase

Div = $0.25/quarter = 2%; should see increase announced soon

Shares = $50.51; PE = 12

Company has aggressively repurchased shares over the years and appears very shareholder friendly.

Management is targeting at least 10% earnings growth over next 6 or 7 years (EPS = $8.00 by 2016 or 2017).

 

Jan announcements:

1.) Canadian expansion: purchased rights to Zellers locations; expect to have 100 to 150 Zellers open in 2013 or 2014. Purchase will impact EPS = $0.15 to $0.20; guidance above is net of this.

2.) selling credit card receivables; expect this to improve profitability of credit card business and improve growth which will benefit TGT and partner.  Analysts seem to be scratching their heads over this move.

 

[bttmline]

I haven't dug into financials in a long time on TGT, but I can tell you about the company from a US consumer standpoint.

1. The quality of products, customer service, and overall store design of Target stores is far superior to Wal-Mart. The pricing difference is minimal and I won't even think of stepping into a Wal-Mart if a Target is near my area.

2. I don't have statistics, but to me its apparent that they have captured a majority of the middle to upper income shopper market from Wal-Mart.

3. They have expanded food, dairy, and produce over the last couple of years to compete in the supermarket business.

 

Selling the credit card receivables was one of the main points that Bill Ackman pushed for when he was pushing for change a couple of years ago.       

[twacowfca]

I haven't dug into financials in a long time on TGT, but I can tell you about the company from a US consumer standpoint.

1. The quality of products, customer service, and overall store design of Target stores is far superior to Wal-Mart. The pricing difference is minimal and I won't even think of stepping into a Wal-Mart if a Target is near my area.

2. I don't have statistics, but to me its apparent that they have captured a majority of the middle to upper income shopper market from Wal-Mart.

3. They have expanded food, dairy, and produce over the last couple of years to compete in the supermarket business.

 

Selling the credit card receivables was one of the main points that Bill Ackman pushed for when he was pushing for change a couple of years ago.       

 

Generally agree except for the use of the word captured.  Walmart is my one stop shop.  They have  great price and variety for all basic necessities.  Target's selection is pitiful for groceries and other things I buy, but my wife prefers to shop there for clothing and certain household items.  We're penny pinchers, but Walmart's merchandise is a little too cheap for us in those catagories.  Even so, she still does most of her basic shopping at Walmart.

[vinod1]

1. Walmart is the low price leader and I do not think anyone else is going to dent this in the next 10 years in US. Aldi is an exception but they have a pretty different demographic segment and do not think they are threat to Walmart's core customers. Here are the comments from Target CFO

 

They are low enough on price day in and day out that virtually no one with a sales mix that looks similar to their own can afford to compete with them on price. We could not afford to compete with them on price as we do, if our sales mix looked like WalMart's.

 

We can compete with them and do compete with them directly head on on price on the overlap of the typically commodity and consumable related SKUs that we share in common, but of course we end up enjoying 20% of our sales in apparel with virtually no direct overlap in 20% of our sales in home products with very little overlap, some, but not nearly the overlap that of course is in some of the more commodity and consumable areas of the store. - Doug Scovanner - Target Corporation - EVP, CFO

 

That said, Target focus is on the upper middle class segment while Walmart focus is on the lower middle class. If economy is going to face GD2 at any time in the next few years, there are few businesses better than Walmart to own in such a scenario. Target's upper middle class customer base brings its own advantages as it is able to better withstand a poor economy (though not a deep recession) and is able to sell a greater mix of higher margin goods. Target carved out a "differentiated strategy" that it does not go head to head with Walmart for the same customers so there is space for both to co-exist.

 

2. Sequoia has both Walmart and Target and think Target has the better management. Hearing the management speak I get the impression they are pretty straight shooters and do not see any red flags. Did not really dig into their management though.

 

3. Target still has greater scope to expand in the US while Walmart is closer to saturation except for a few metro areas. Internationally, Walmart is not looking to make a great push into any developed market that already has good retailers that have wrung out the inefficiency and they specifically mention Canada as one example. Given this, I am not sure how successful Target would be in Canada.

 

4. Think both are proverbial 80 cent dollars - good to great businesses at a fair price.

 

Vinod

[Viking]

I do like TGT's (relatively) small size; lots of growth opportunities in the coming years. TGT results also look to be more volatile than WMT.

 

I think they will do well in Canada (similar to Walmart) as their business model/niche looks to be a good fit. Here are some research results: www.bizjournals.com/twincities/news/2011/05/03/study-canadian-shoppers-eager-target.html

[DCG]

Target is shutting down it's entire Canadian operation and closing 113 stores:

 

 

http://money.cnn.com/2015/01/15/news/companies/target-ends-canadian-operations/index.html

[augustabound]

The couple of times I was in Target stores here I was underwhelmed like most people. Empty shelves and prices seems average at best (not that I comparison shop but nothing stood out).

 

It sounds like most people had the same experience I did.

 

I couldn't believe that the estimate for turning a profit here was 2021.

[Uccmal]

Yeah, The stores were an abomination.  That was short lived and entirely predictable.  They are going to be stuck with some pretty ugly leases for a long time. 

[augustabound]

Yeah, The stores were an abomination.  That was short lived and entirely predictable.  They are going to be stuck with some pretty ugly leases for a long time.

 

Yeah, and they took some seedy locations too. I guess you have to if you follow Zellers though, they were seedy central even in the nice malls.

 

The one here in Newmarket is prime real estate at the corner of Davis and Yonge with Target fronting Yonge St. and next to the main entrance to the mall.

The mall itself has undergone a series of renovations the last 5 or 10 years. If they can expand the footprint or build up then a big box can take over the space. As it sits, it's pretty small compared to big box power centres.

I'm not sure if Newmarket is on Nordstrom's wish list.

 

As for the other 132 locations is anyone's guess.

[intothebreach]

I only went to one and only once to get a specific Xmas gift that was supposed to be on sale (was not, but not necessarily Target's fault on that one), but from a few of the stores that I could ses around Montreal, it seems that at least a few location were anchor positions in smaller, beat down malls, those that have been supplanted by larger shopping centres and the more recent clusters of shops in a single location (such as Brossard's Dix30 at the corner of highways 10 and 30).

 

My uneducated of Target prior to the Canadian debacle was positive. But from their very rough start in Canada to this, I now question their decision making. No position whatsoever.

[Guest 50centdollars]

Funny thing is that whenever I go to the US, I shop at Target but I would never go to a target here in Canada. They never did there research before coming here. Canadians love target but we love the US target with US products and US prices. We don't want/need a Canadian target with Canadian products and Canadian prices.

[mrholty]

TGT's mgmt. has been living off past success since 2008 (if not earlier).  CEO Rob Steinhafel was named CEO in 2008 and has not done much until he was forced to resign in early 2014 due to the data breach. 

 

I graduated from UW-Madison at Target hired aggressively in the B-school there for marketing/merchandising positions.  It was their primary school for hiring even over Minnesota-Twin Cities even though that campus in a few miles from their corporate office.  I therefore had a few friends who worked there and one former intern of mine who works there today.  In fact I went to their presentation on campus and Rob Steinhafel was the presenter.  I remember this as his last name is the name of a regional furniture store in the area and it came up that he chose Target over the family business out of school thinking he would get experience for a different retailer and then come back to work for the family business.  He loved and grew with Target and never left. 

 

During their expansion in the late 90s from a Shopko/Pamida crappy store to the upper middle competitor to WalMart today the business was all analytics and inventory mgmt.  Expectations of staff were high and 70 hours weeks were the norm.  I had a friend where she was responsible for towels at every store nationwide.  She was responsible for translating what they buyers choose into how much to buy, where to place by store and then daily responsible for ensuring appropriate stock.  Since she had towels that was normal bathroom towels and beach towels so she had to track weather patterns to have appropriate beach towels for when the heat hit, etc. Like an account at the big 4 or an I-bank - 80% quit after 2 years, she got promoted and oversaw a staff and did this for 10 years until quitting to be a stay at home mom.  I saw her a year ago and we had a few drinks about those years as I worked a couple miles away and we went out a few times.  She told me the 70 hours weeks were gone and much more relaxed 40-50 hour weeks and too much staff for accountability. 

 

I'd guess this was part of their problems in Canada. 

No position.

[augustabound]

We don't want/need a Canadian target with Canadian products and Canadian prices.

 

No, that would be Zellers. And it was pathetic.

[bci23]

TGT's mgmt. has been living off past success since 2008 (if not earlier).  CEO Rob Steinhafel was named CEO in 2008 and has not done much until he was forced to resign in early 2014 due to the data breach. 

 

I graduated from UW-Madison at Target hired aggressively in the B-school there for marketing/merchandising positions.  It was their primary school for hiring even over Minnesota-Twin Cities even though that campus in a few miles from their corporate office.  I therefore had a few friends who worked there and one former intern of mine who works there today.  In fact I went to their presentation on campus and Rob Steinhafel was the presenter.  I remember this as his last name is the name of a regional furniture store in the area and it came up that he chose Target over the family business out of school thinking he would get experience for a different retailer and then come back to work for the family business.  He loved and grew with Target and never left. 

 

During their expansion in the late 90s from a Shopko/Pamida crappy store to the upper middle competitor to WalMart today the business was all analytics and inventory mgmt.  Expectations of staff were high and 70 hours weeks were the norm.  I had a friend where she was responsible for towels at every store nationwide.  She was responsible for translating what they buyers choose into how much to buy, where to place by store and then daily responsible for ensuring appropriate stock.  Since she had towels that was normal bathroom towels and beach towels so she had to track weather patterns to have appropriate beach towels for when the heat hit, etc. Like an account at the big 4 or an I-bank - 80% quit after 2 years, she got promoted and oversaw a staff and did this for 10 years until quitting to be a stay at home mom.  I saw her a year ago and we had a few drinks about those years as I worked a couple miles away and we went out a few times.  She told me the 70 hours weeks were gone and much more relaxed 40-50 hour weeks and too much staff for accountability. 

 

I'd guess this was part of their problems in Canada. 

No position.

 

I can second everything mentioned above. Instead of 40 - 50 hour work weeks try more like 30 - 35 though. There is so much fat at that company its insane. After the turnaround at Best Buy is complete, Hubert and Sharon should just walk down the street and rinse/repeat with Target. EZ Game.

 

CEO was Gregg not Rob :)

[bizaro86]

Some of the Canadian leases are good. They have good spaces in Calgarys two best malls, including one where sears canada sold their lease to Nordstrom for $$$.

[bci23]

If anyone wants a look into the future for the next two years at Target, just look what has gone on at Best Buy the last two years. There is nothing wrong with Target's business, Cornell just needs to tighten up a few things. His game plan has already been created by the execs at Best Buy. Today was the the early innings of that game plan.

[bookie71]

Good article in Fortune

http://fortune.com/target-new-ceo/

[Junto]

I went long today at $55.25. Appears oversold, great yield here.

[mbreject]

I feel as if Target is extremely lucky that they haven't had a class action lawsuit brought against them for overcharging yet. It's been going on for years and the only thing I've seen them do about it is put stickers at the checkout till, telling customers to let the cashier know if there's a price discrepancy.

[CorpRaider]

Retail = insta-no

[Junto]

There is a lot of disruption in retail but I think the market reaction is a bit overstated. We are not talking about a highly levered retailer here, or a high PE ratio. Reminds me of the haters on Best Buy. I may be early on this one but relatively small position to overall portfolio at this point. I don't expect to see a dividend cut and have confidence in the ingenuity and work ethic of my fellow Minnesotan's to get this retailer also turned in the right direction.

 

A little backyard bias but at 4.36% yield to wait when 10 year is at 2.56% and a PE at around 12. I think it is acceptable risk.

[GregS]

Retail = insta-no

 

I'm hearing this a lot lately.  I think I'm going to sharpen my pencil on retail, with Target at the top of the list.

[Junto]

I have a full position now after it dipping around $53.

[nafregnum]

TGT is looking good on the little screener at dividendgeek.com.  They've raised dividend for 49 years, and payout ratio is 47% so it doesn't seem like the dividend is in question. 

 

http://www.dividendgeek.com/undervalued-stocks/

 

I remember thinking TGT was probably cheap around the time they closed the Canada stores, but I didn't buy any at the time, then I felt like a thumbsucker as I watched it gain 30%.

 

My burning question: If WMT bought Jet.com to try to compete with Amazon and then got dropped by BRK, would TGT also be dropped by BRK if it had been in the portfolio.  Are WMT and TGT being tempted to join the race to the bottom price by Amazon?  I don't want to ignore the way the long term wind is blowing, against retail...  I have a Target Superstore a few blocks from home, and shop there all the time.  I actually prefer it over the local Walmart because it's cleaner (and admittedly closer) ... are those long term advantages that will hold out for Target?

 

There's no reason to believe TGT is going to be the next Sears is there?  I think that sounds pretty crazy to say it, but if there are any interested bears who would argue that perspective I'd love to hear it.  I'm thinking of buying some now just because it feels like there's pessimism and there's a solid dividend and I'm not seeing the justification for the pessimism except that it seems like what Walmart announced a year or two ago...  Is there anything else scary that you guys know about?

 

[Junto]

I am surprised that this hasn't been a larger conversation topic. I like what management has been doing the past quarter and I think the partnership with Fixer Upper HGTV stars Joanna and Chip will also be a positive.

 

Recently I have noticed a major improvement in traffic in my local store. Not sure how much is seasonal traffic but I will say my wife had a positive review of their new brand roll out i.e. $$$ spent.

 

Numbers look acceptable, traffic flow is turning, trading still at a good price point. 

 

Others?