Sentiment has been worse on this name than any other large cap retailer. That will now change. Still one of our top long TAIL ideas.
Solid quarter, great quality beat, and quite possibly the best looking SIGMA out of any of the retailers who have reported thus far this quarter. Sales +4.6% on 3% inventory growth – though it might not seem like much, it is meaningful for TGT, and represents the most favorable sales/inventory swing the company has seen in over 2-years.
We haven’t been too concerned about this one from a TRADE perspective (30 days or less) and we’ve been confident in the name on the TAIL (3 years or less), but our lingering concern has been on the TREND duration (3 months or more). This quarter came a step closer to eradicating our (and the Street’s) issues surrounding items like P-Fresh and the Redcard 5% rewards program. Simply put, we saw good comp numbers without an outsized hit to gross margin (which was down only 35bps at retail).
We’ve been quite amazed in our discussions with investors as to how many people have been flat-out afraid of owning Target due to near-term concerns – despite what they admit is a very cheap valuation. On one recent trip to Boston, Casey and I were placing bets by the end of a 10 meeting day as to how long it would take a PM/Analyst to say “Yeah, I hear you on TGT, but I just can’t go there.” This quarter should go a long way in turning around the negative sentiment.