TGT - 3 KEY QUESTIONS

Takeaway: If we had five minutes or less with TGT’s CEO, here’s what we’d ask.

Here’s the deal…you have five minutes alone with the CEO of a company, leaving time for maybe three questions. If you value your time you’re likely to focus on the key critical uncertainties that exist in the market. And make no mistake, they exist for every company out there.

 

We’re going to explore these key questions one company at a time, and we’re going to start with Target – which we think is one of the better shorts in retail.

 

Here’s what we’d ask CEO Gregg Steinhafel if we had five minutes or less.

 

1. Who Are You Guiding? Who are you talking to with your guidance, Wall Street or Main Street? We’ve never had to ask this question before to a CEO. But the reality is that you’re saying that you are going to comp positive this year, AND Gross Margins will be up (in the US and in Canada). And all of this will happen while you are lowering prices to win back customers who left after the data breach. It seems like an impossible combination. That leads us back to the question – are you giving that guidance to Wall Street or Consumers? This is kind of like what Cruise Companies do during their peak booking season – they generally have positive comments because they’re talking to travel agents, not to Wall Street. If they say that bookings are weak, then agents will discount price more heavily. Similarly, is Target sending out this perplexing message to keep consumer opinion high, even if it means the potential to lower expectations with Wall Street later in the year.

 

2. Share Loss. Who do you think is gaining the most business from the customers who left? For argument’s sake, let’s assume that it’s Wal-Mart. Do you think that WMT is prepared to let that business go so easily? Will you match Wal-Mart if it comes down to price? In reality, the people that left did not leave because of price. They left because of trust. You might be able to buy back trust, but you’ll have to undercut Wal-Mart on price rather significantly. If that’s true, refer to question #1.

 

3. What does Target want to be? That sounds like a ridiculous question at face value. But the reality is that it used to be Wal-Mart vs Target – in share of market, share of mind and share of investment dollars. But as bad as Wal-Mart’s rap sometimes can be, it has over 10,000 stores under 71 banners in 27 countries. It has several formats – from Supercenters, to warehouse clubs, to neighborhood markets, and it is even beta-testing C-stores/gas stations. At least it’s trying to evolve. Target has just has one primary format in North America, with a token operation in India. The point is that Target used to be right there with WMT – but now it seems to be somewhere between WMT and Kohl’s. When you look out five to 10 years, what will Target look like?

 

Bonus Question (if he hung around an extra 2 minutes).

Do you think you fired your customer? JC Penney fired its customer. Ron Johnson said at the time that he did not. Lululemon fired its customer. Chip Wilson said at the time that he did not. Both of those retailers will likely take 2-3 years to get an acceptable portion of customers back. Do you think that you have fired your customer? Your guidance suggests that the answer is No. (Note: we’d give him all the credit in the world if he said Yes – because it would suggest he’s doing something about it).


Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more