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Target Stock: Why the Market Is Getting the Retailer Really Wrong

The chain’s stock has plummeted which creates a buying opportunity. Here’s why that’s a good idea.



The chain's stock has plummeted which creates a buying opportunity. Here's why that's a good idea.

Target (TGT) - Get Free Report has an inventory problem. The chain found itself with warehouses filled with the items people wanted during the pandemic -- bulky items like televisions, furniture, and exercise equipment -- and it made the decision to sell some of that excess off at a discount to clear room in its warehouses for the holiday season.

Offering lower prices hurts margins and profits, but it's a driver for customers and it strengthens their loyalty to the brand. That's why CEO Brian Cornell's comments on the quarter not being what the company hoped for during the chain's third-quarter earnings call only tell a piece of its story. 

Q3 profitability came in well below our expectations, driven by several factors. First and foremost, we faced an unexpected gross margin rate headwind from a higher-than-expected mix of promotional sales, as guests moved away from full-price purchases. In addition, like the rest of the industry, we're facing a growing financial headwind from shortage, which is running hundreds of millions of dollars higher than a year ago. Along with other retailers, we've seen a significant increase in theft and organized retail crime across our business.

Investors tend to focus on the negative and a company failing to meet expectations, admitting that theft has gone up, and adjusting its holiday season to include a possible year-over-year decline tends to send shares down. That has happened to Target which has seen its share price fall roughly 36% over the past 12 months,

When you dig into what's actually happening, however, you don't see a struggling company. Instead, you see a retailer that's very well-positioned to do well against its chief rivals Walmart (WMT) - Get Free Report and Amazon (AMZN) - Get Free Report.


Target Saw More Customers, Higher Sales

While it wasn't all good news in the short term, Target actually reported a lot of good news. Customer traffic was up 1.4% year-over-year and those shoppers spent 1.3% more. 

"Because of the deepening level of trust we've established with our guests over the last several years, our top line continues to benefit from growth in guest traffic and new share gains across all of our core categories," Cornell said. "This is particularly notable as consumers are showing increasing signs of stress and pulling back from discretionary purchases. And it reinforces the value of having a balanced multi-category portfolio, which allows us to satisfy our guests' ever-changing wants and needs.

Basically, Target has loyal customers in ways that Walmart and Amazon mostly don't. Yes, Walmart appeals to priced-based shoppers and Amazon delivers a mix of price and convenience, but Target has a special connection with its customer base.

People go to Target to walk the aisles for fun when they only need a few things. Have you ever heard someone say that walk around Walmart for fun? In many ways, Target has the same joy of discovery-based shopping that Costco benefits from as people like to see what's on sale, new brand or celebrity partnerships, and other merchandise even if they may not buy it.

Target's Sky Is Not Falling

In addition to seeing increased foot traffic in its stores, Target also reported a strong same-store sales number.

"Q3 comparable sales grew 2.7%, on top of 12.7% a year ago and 20.7% in the third quarter of 2020," Cornell said.

The pandemic set a very high bar for growth and Target exceeded that bar. Customer needs are clearly changing and that's not a negative.

"In addition to traffic growth, we saw a 1.3% increase in average ticket as guests continue to rely on Target for convenient, reliable one-stop shop. Across our merchandise categories and similar to the second quarter, we saw very strong growth in our frequency businesses, led by double-digit growth in both beauty, and food and beverage," the CEO said.

Yes, people spent less on discretionary items, but they still relied on Target for what they needed. If times get tighter -- and Cornell expects they may -- profits may be lower, but the chain will hold onto its customer base, and likely build an even stronger connection.

Amazon and Walmart may do that to a certain extent, but Target scored a 78 on the most-recent American Customer Satisfaction Index for retail, gaining two points, and finishing near the top. Walmart came in at the bottom with a 71. In the e-commerce category -- an area where Target has not invested as heavily as its rivals -- Target tied Amazon at 78 while Walmart again came in at the bottom with a 72.

While stocks often go down based on an earnings miss and/or guidance that's revised down, good CEOs don't manage for the quarter. Cornell has built Target's connection with its customer and they keep coming back. That will get the company through any sort of economic downturn and while short-term profits may suffer, the chain will come out the other side stronger.    


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‘The Scandal Would Be Enormous’: Pfizer Director Worried About Vax-Induced Menstrual Irregularities

‘The Scandal Would Be Enormous’: Pfizer Director Worried About Vax-Induced Menstrual Irregularities

Project Veritas on Thursday released a…



'The Scandal Would Be Enormous': Pfizer Director Worried About Vax-Induced Menstrual Irregularities

Project Veritas on Thursday released a new segment of undercover footage of Pfizer director Jordon Walker in which the Director of R&D within the company's mRNA operation expressed concern over how the COVID-19 vaccine may be affecting women's reproductive health.

"There is something irregular about the menstrual cycles. So, people will have to investigate that down the line," Walker told an undercover journalist he thought he was on a date with.

"The [COVID] vaccine shouldn’t be interfering with that [menstrual cycles]. So, we don’t really know," he added.

Walker also hopes we don't discover that "somehow this mRNA lingers in the body and like -- because it has to be affecting something hormonal to impact menstrual cycles," adding "I hope we don’t discover something really bad down the line…If something were to happen downstream and it was, like, really bad? I mean, the scale of that scandal would be enormous."



Tyler Durden Thu, 02/02/2023 - 19:30

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Rebar robotics firm Toggle adds another $3M to its fundraising tally

There’s no denying that the robotics startup world has taken a hit during the ongoing economic downturn. Recent numbers prove what we’ve all suspected…



There’s no denying that the robotics startup world has taken a hit during the ongoing economic downturn. Recent numbers prove what we’ve all suspected for some time. But two things are true: 1) The lull is temporary; and 2) While robotics isn’t recession-proof, construction might as well be.

This is certainly a theme of late — as other categories of robotics have struggled to raise, those operating in construction appear relatively unimpacted. New York-based Toggle this morning announced that it has added another $3 million to its coffers as part of a “Series A Extension.” The initial $8 million Series A was announced back in 2021. Japanese firm Tokyu Construction is a first-time investor in the startup, whose total raise is currently at $15 million.

Image Credits: Toggle

Toggle CEO Daniel Blank tells TechCrunch:

With a renewed interest in American manufacturing and production capacity and the investments pouring into infrastructure and renewable energy in particular (but also batteries and microchips manufacturing), we have been successful at navigating the difficulties whether due to our category, a slowing economy or the pandemic. In this round, adding strategic investors, we’ve demonstrated that the problem of labor cost, availability and speed is really at the forefront for construction firms and they are going directly to the tech startups rather than through VCs to access solutions.

Toggle makes robots that bend rebar, the steel skeletal reinforcement you find in all manner of heavy construction. The company’s headcount is currently at 40, which the company plans to double over the course of the next year, following an upcoming Series B raise. Those roles will primarily be focused on engineering and operations.

Blank notes that the pandemic has contributed to an increased interest in automating difficult and expensive pieces of the construction process.

Image Credits: Toggle

“The pandemic has had a significant impact on the construction industry, leading to increased costs and complexity. Supply chain disruptions, inflation, and rising labor costs have all played a role,” he explains. “To combat these challenges, there has been a growing interest in the adoption of robotics in construction. This trend is consistent across different segments of the industry, as owners and contractors seek ways to save time and money. Robotics and automation, similar to those used in manufacturing, are seen as a solution. This has also led to an acceleration in the use of prefab and modular construction methods.”

In addition to hiring, the new funds will be used to ramp up its robotic production.

Rebar robotics firm Toggle adds another $3M to its fundraising tally by Brian Heater originally published on TechCrunch

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January Employment Preview

On Friday at 8:30 AM ET, the BLS will release the employment report for January. The consensus is for 185,000 jobs added, and for the unemployment rate to increase to 3.6%.There were 223,000 jobs added in December, and the unemployment rate was at 3.5…



On Friday at 8:30 AM ET, the BLS will release the employment report for January. The consensus is for 185,000 jobs added, and for the unemployment rate to increase to 3.6%.

There were 223,000 jobs added in December, and the unemployment rate was at 3.5%.

From BofA economists:
"Nonfarm payrolls likely rose by 225k in January, little changed from the December increase. Payrolls were likely boosted by the end of the strike by University of California workers in late December. The strike affected 36k workers according to the BLS and likely largely explained the ~24k drop in state education employment in December. These workers should return to payrolls in January."
From Goldman Sachs:
"We continue to expect a strong employment report, and we left our nonfarm payroll forecast unchanged at +300k (mom sa)."
Click on graph for larger image.

• First, as of December there were 1.24 million more jobs than in February 2020 (the month before the pandemic).

This graph shows the job losses from the start of the employment recession, in percentage terms.  As of August 2022, the total number of jobs had returned.

Annual Benchmark Revision: The benchmark revision for 2021 will be released with the January employment report. The above graph doesn't include the preliminary benchmark revision that showed there were 462 thousand more jobs than originally reported in March 2022.

ADP Report: The ADP employment report showed 106,000 private sector jobs were added in January.  This suggests job gains below consensus expectations. ADP chief economist Nela Richardson noted: "In January, we saw the impact of weather-related disruptions on employment during our reference week. Hiring was stronger during other weeks of the month, in line with the strength we saw late last year."

ISM Surveys: Note that the ISM indexes are diffusion indexes based on the number of firms hiring (not the number of hires).  The ISM® manufacturing employment index decreased in January to 50.6%, down from 50.8% last month.   This would suggest the number of manufacturing jobs was mostly unchanged in January.

The ISM® services employment index for January has not been released yet.

Unemployment Claims: The weekly claims report showed a decrease in the number of initial unemployment claims during the reference week (includes the 12th of the month) from 216,000 in December to 192,000 in January. This would usually suggest fewer layoffs in January than in December. In general, weekly claims were below expectations in January.

•  COVID: As far as the pandemic, the number of weekly cases during the reference week in January was around 332,000, down from 458,000 in December.  

•  Weather: As ADP noted, there was severe weather during the reference week. After the release, I'll check the San Francisco Fed estimate of Weather-Adjusted Change in Total Nonfarm Employment.

Conclusion: This employment report is especially hard to predict.  There is a significant seasonal adjustment for January (there are always a large number of jobs lost in January NSA).  And there are other factors - severe weather, end of a strike - that will likely impact hiring.  My guess is the report will be below consensus.

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