The Wal-Mart US business posted its first positive traffic count since 3Q13 and it’s no surprise Comp number followed suit even against a 14 week quarter last year.
A few read-throughs from the WMT print to some of our top SHORT ideas:
1. TGT - The across-the-board wage hikes are not good for TGT. It will cost WMT about $0.20 in earnings or about $930mm pre-tax for the 500,000 US WMT store level employees. That equates to $1870 per employee. TGT will need to maintain the compensation spread. If we extrapolate the cost to TGTs ~300K store level employees we are looking at an additional $560mm in compensation expense (about 75bps of EBIT margin). That flows through to about $0.56 in EPS, about a 12.5% hit to the company's forecasted 2015 earnings number of $4.48. Chances are that TGT does not follow suit immediately, but will see if it can comp with a tighter wage gap to WMT. This is officially on the table for TGT.
2. HIBB - Historically the company's comp trends have mirrored the traffic and comp trends at its neighbor WMT. WMT US just posted its first positive traffic number in 9 quarters, and that coincides with HIBB comping against a -10% number last January. To us that set's HIBB up for a surprise to the upside on the revenue line. If we don't see it, it's a clear indication that this business is broken. For FY16 we're 10% below the street, that spread widens to -75% by year 5 of our model.
3. KSS – Everyone already knows that KSS recently reported positive store comps for the first time in 3 years. The question on most people’s minds is whether it is due to the company’s own initiatives, or a better macro climate. After seeing retailers like BonTon and Belk put up mid single digit comps after a horrendous stretch for 2+years and now seeing WMT’s comp tick up on the margin – it supports the case even more that KSS’ recent strength is not company specific. When people attribute macro tailwinds to company-specific ‘Greatness’, it gets us a lot more intrigued on the short side. KSS remains one of our favorites.