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Target’s ‘Since 1987’ Collapse Sends Macro Warning
On Tuesday, Walmart suffered what I described as a "black swan" moment, when the company's shares plunged following uncharacteristically disappointing quarterly results.
On Wednesday, it was Target's turn.
Like Walmart, the company cut guidance and missed estimates on the bottom line. But, again like Walmart, it was margins that spooked investors. The company's operating margin in Q1 was just 5.3%, which management conceded was "well below expectations." Gross margin was 25.7%, nowhere near th
Wow! The JP Morgan expectations for the price of gas are the nastiest I have ever seen. That alone can throw freezing-cold water on expectations for Q3 and Q4. Nothing positive there…
Costco and the dollar stores are up next. I wouldn’t be surprised if Costco beats and sees a nice pop post-earnings. While their clientele is similar to Target, they focus more on the food and essentials and their customer base is generally more insulated from inflation. I could also see them having less wage pressure since they already pay higher wages and have better employee retention. Might be a good entry point for Costco (or another opportunity for me to look stupid).
Maybe “Mr. Market” was right about Target, but at least in theory the market changed the value of the stock to a level that reflects an expectation that a quarter of all the profits the firm could have ever expected to earn into infinity now can’t be earned. Seriously? This is the same way the market should have reacted if, overnight a quarter of all TGT’s stores had burned to the ground for a total loss, never to be replaced. Somehow, it seems to me Mr. Market overreacted.
I will say, the decline of gross margin, while significant, implies two things. The producers have more pricing power than the sellers so PPI is the primary inflation driver here. However, as inventories seem to be rising, the PPI should start falling, Both these conditions should start to cool off inflation.
with market reactions to WMT and TGT we may be accelerating towards generalized widespread market panic…and by extension the much anticipated relief rally may be extremely short lived…
Those gas prices are already here in the Bay Area.
The gas prices are even more problematic because of the chip shortage impacting EV availability. Even if you wanted to trade in your gas guzzling pickup for an EV version, you can’t get one anyway.
isnt excessive inventory good for lowering inflation at least? silver lining mayhaps?
H-Man, it appears the consumer is going on a sabbatical and it may be a lengthy sabbatical.
The price-gouging gas station down the street from me had regular unleaded at $5.99/gal at the initial spike in oil prices at the beginning of Putin’s war. Then it went to $6.25/gal for several weeks. Mind you, there is no observable change in people’s driving habits. I still hear people in Dodge Chargers and modded Hondas revving their engines at all times of day and night to get to the next stop light as fast as possible. Today, I noticed that the price has been adjusted to $6.49/gal.
Looks like people have finally spent all their stimmy dollars and reality has returned.
Good point. But we still keep hearing that “Americans are flush with savings they can run down.”