TGT earnings play

Research & Analysis
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After seeing WMT , KR , DG , and COST running today with fear today , TGT was taken down with SPY. It got me thinking that if the thesis of the initial stocks is that staples are going to be the focus of consumers. I am currently in the opinion that we will face the split of economic activity based on income brackets where the extreme of the lower income targeting companies and the higher income targeting companies will do well. So now the thought process is where does TGT lie and why bother playing it? My thought is if TGT is in the middle then it would be expected will do bad as its customers are expected to shop elsewhere to save money. This creates a good risk/reward oppurtunity if their earnings/ forecast do well. So I am creating this thread as a place holder as I do research.

Here is a link of first article I found.

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Ah yes, I’ve been looking for a good boomer play. Half joking, this is the best time for consumer staples and insurance plays since rate hikes aren’t slowing down anytime soon.

Here’s an article with a little detail on their recent strategies to attract consumers:

Summary:
-Building a more modern “Mall” experience, with “stores within a store” and where consumers come to see “what they have” vs. normal shopping off a list.
-Drive foot traffic from this experience.
-Attracting popular brands to enable this - SBUX, Ulta, etc. type stores to set up shop within, Levi jeans is the example they give for brands that speak to their audience. They want to partner with companies that seem higher end than the prices they charge
-This strategy has been successful so far - No $ numbers mentioned, but they are expanding these partnerships to hundreds more stores throughout 2022.

“Mall” is still a bit of a dirty word to me, but I do think there is a need to be met here post-pandemic. In my anecdotal experience, a lot of people do look to Target as an experience of sorts.

The Target near me is always slammed, but is a well-oiled machine with lots of self-checkouts, yet plenty of registers are staffed. The target audience is young-middle aged women for sure, 60-65% is what they say in your article.

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Adding some notes from the last earnings call - it’s 2.5 hrs long for some reason lol, so this is only up to 1:30 in. So this is everything before they discussed the Financials and gave guidance. The strategy/growth/results all sounded bullish to me, though.

3/22 Earnings Call Notes:

General:

-Starts off with a speech about how everyone doubted his expansion strategy in 2017 and the stock price suffered…. But of course it was very successful over the years.

-Label themselves as a Growth Company, investing in “Big wins”.

-Affordability is a priority, but they drive to meet it by catering to Proximity, Accessibility, and Assortment Choices in addition to just prices. So they offer convenience and variety to attract customers, and allow them to self select into their price range. They also push their credit card as a way for customers to save.

-Claim to be protecting customers from inflation, not sure how much truth there is to that, but it’s a nice thing to say in these trying times. “Affordable luxury”

-Roundel is their advertising platform/business unit, and is a growing revenue stream for their hub model. This is what they use to drive business to their partners.

-Lots of supply chain improvement to support digital sales, no surprise here. Same day demand is rising fast - more than half of digital sales last year were same day services. Building more sortation centers, etc.

*This should drive cost savings along term

-Investing $300M in employee pay and expanding benefits - $15-$24/hour. Will be a wage leader in every market they operate.

*Turnover is below pre-pandemic levels, despite its historic highs in the market as a whole.

-List of other partnerships/enhancements I missed above that they are planning to add in remodels - drive up shopping, Disney and Apple in-store partnerships, CVS, eye care, ear piercings (it’s just like the Mall after all :open_mouth:)

-Target’s digital experience is evolving around guest behaviors. Data-driven insights around convenience are their focus, along with ad spend and customer retention.

-Convenience and customer experience are a top priority, lots of small enhancements around this

Sales/Growth/Earnings:

-Digital was 19% of sales in 2021, nearly tripled over 2 years. They claim this growth is due to their “hub-store” model. +4% traffic in 2020, +12% in 2021

-Comp salesup 8.9% last Q, 12.7% on the year

-35% sales growth ($27B) since 2019

-EPS +44% from 2020, double 2019

*Stated they covered the cost of their strategic initiatives with earnings

-Target’s owned brands grew 18% in 2021, over $30B in sales

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ya the target owned brands are an interesting factor. Based on conversations I have here is that Target is def the middle and that the people who do shop there and spend more are those who can afford spending in other things like Whole Foods or higher tier costs like Lululemon. Ill try to go over some oinformation when i have free time.

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Next time I’ll finish the earnings call before I go to sleep :sweat_smile: probably gonna have to wait for a pullback after today, it just keeps running

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Target got a raise from hold to BUY and a PT increase from $255 to $300 from Haskett this morning.

This article came out yesterday (CNBC Pro), can’t believe I missed it: Barclays names Target a top pick, says demand should hold up even in weak economy.

For Kroger, BofA said elevated food inflation will be among several upside earnings drivers. Target sells quite a bit of food too so I would expect the same to apply.

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very nice so TGT will get treated like Costco , they have higher margins than WMT as well I believe. Im gonna go ham on TGT.

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I wonder which gap will get filled prior to ER day…

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It’s right in the middle of the two most recent gaps as well.

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As a reminder here earnings is May 18 so there are macro events that can bring the market down and affect the risk reward ratio of the markets expectation of TGT , run up potential , earnings play. Will do some more research this weekend.

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Gun to my head, unless there is something that tanks the whole market I think it will gap fill the one around $260 first. So much recession talk has been pushing TGT, WMT, and COST up even when SPY is going down. WMT & COST are reaching new ATH’s, while TGT has been lagging.

Though per usual disclaimer, inverse-Beaker typically pays better.

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If I had to guess, TGT is lagging because it’s not seen as purely a grocery store, the same way WMT, KR, or COST are.

That being said, I have TGT calls and think it does follow those up.

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We still have CPI and FOMC before earnings run up so im swinging per each catalystic event. TGT historically trades with spy more than the other Retail stores so im watching if it can break away from this trend consistently.

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We shop at Target occasionally, Walmart almost never, and our Costco membership expired so we rarely borrow my cousins. But when we go to Target, its typically for Laundry Detergent and things like that, if it doesn’t come in from Amazon Prime. But what we almost never get from there is foodstuffs. I’ve been to Target to pick up Soaps and stuff and then driven 15 minutes down the road to an HEB ( think its Texas only) to grab food, instead of just staying at Target.

I think you are right that its a laggard because its not viewed like WMT, KR or COST

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TGT is my bigger play in my portfolio at the moment.
20 - 5/6 245c
4 - 5/13 245c

This thread was what originally inspired me to look deeper into Target since I was looking for something else to play other than LMT😂.

With the recent news of increased foot traffic, Barclays price target of $280, Hasketts price target of $300, and an average price target of $278, and most analysts rating it as a moderate to strong buy, it kind of seemed like a no brainer to me.

Targets recent earnings report showed a year over year increase in revenue of 9.4%. Along with beating the EPS with 3.19 vs 2.86. One thing to note is Target has beat expectations in their last few earnings reports.

Q1 earnings, analysts are expecting a -17% drop on the EPS BUT are when it comes to the earnings from
this time last year they estimate increase of 9%.

Many analysts are also stating that Target is highly undervalued compared to its competitors such as Costco and Walmart.

My concerns:

  • How it has traded inverse of SPY as of late since many of TGT’s suppliers correlate with spy. And of course, supply chain issues.
  • Increase in Covid cases lately and having to rewind back to how things were during the pandemic.
  • The news has been using the word “Recession” a lot more than I’d care to hear, which could also be scaring retailers out of stores.
  • Amazon prime. Amazon prime is easy to have just about everything shipped right to your door.

One thing I have noticed lately is how I have seen a lot more people going to Target for normal Groceries as of late. For awhile there I noticed our target grocery section wasn’t really all that popular, but has very steadily increased in shopping as of late. Even in my area I’ve noticed much less people in the local grocery stores and much less traffic as Costco compared to Target.

Target is open late, always has specials on just about everything compared to other stores, and is steadily becoming a one stop shop! With the analysts reviews, the earnings reports and guidances increasing growth, and seeing local targets getting busier and busier, I am definitely bullish short and long on Target.

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What do we know. Something actually tanked the whole market. I’ll hold MadBeaker words closer to my heart now.

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Thanks again for starting this, @Isaiah

I’ll probably start my position here early–2weeks at least before ER, and probably hold that position too…

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TGT is one big mighty gapper, from what I’m seeing.

Might even get a put now.

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Have any thought process on how how to calculate IV spike from ER play?

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We simply have to monitor it.
Usually starts spiking up 1week before ER day.
Sometimes earlier.
Ideal entry is below 50% IV.
100% IV is ok too if even higher volume is expected 1hour before ER.

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TGT earnings are in just over 2 weeks. It’s gotten beat up pretty well reently, partly becasue of actual concerns with a lack of turnaround plans from mgmt, and partly because of the backlash from promoting LGBTQ+ merchandise. And yesterday, Raymond downgraded them.

Nevertheless, TGT has fought with the $130-135 level for over a month and is holding over the 20SMA (image 1). Implied move is about 7%, which is about +/- $10.

What do folks think?

Was thinking of playing with something like this double diagonal spread (image 3): Double Diagonal | OptionStrat Options Profit Calculator
Planning to getting it on Monday, and selling it the day before earnings, i.e. 8/15. Partly because this is a positive vega play until then, and lots of eyes on TGT and it could move outside its expected range.

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Adding to that, relatively speaking compared with COST and WMT, TGT is hugely down. Risk/reward probably favours the upside? I usually avoid playing earnings though. I suppose if the earnings are good, and the stock gaps up, there is probably upside to ride during trading hours based on its relative low price.

https://twitter.com/Mr_Derivatives/status/1685672662818013184?s=20

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