Christine Short, Head of Research at Wall Street Horizon, dives into what we learned from retailers last quarter.
Transcript:
Caroline Woods: Joining me to dig into retail earnings is Christine short, head of research at Wall Street Horizon, a TMX company. Christine, Thanks so much for joining us.
Christine Short: Yeah, Thank you for having me.
Caroline Woods: Christine, let’s start with target, because news of this CEO shakeup seems to be really overshadowing the actual numbers. The stock is sharply lower right now. Why do you think investors are so disappointed with Brian Cornell stepping down and with the CEO replacing him come February?
Christine Short: Yeah, you’re right. It’s a little surprising to see investors react this way because they did actually beat on the top. And the bottom line. They’re still, you know, EPS is still down 20% year over year. That is the fourth consecutive decline. Revenues were down about 2% the third consecutive decline. But overall, this story has not been getting much better. And you know, perhaps investors will change their mind about a new CEO. A lot of times they greet that with, you know, positivity because it has not been going so well for Brian Cornell. Michael Fiddelke is an insider. He’s the former CEO. He won’t take his new post until February 1, so we’ll see if sentiment changes over that time. But I think what you’re seeing in the stock today is just an overall reaction to the difficult environment that target has been dealing with. We did see a couple of segments pick up versus what they were in the first quarter, but really it’s just food and beverage, which we know only makes up about 20% of their revenues. But that’s the only segment that’s consistently been doing well. We know beauty, which they’ve tried to uplift a little. It did perk up a bit this quarter. It just barely eked out a beat, but we know that partnership with Ulta to open many beauty, you know, stations throughout the stores has fallen through. And then with tariffs about, 50% of their goods are produced in the US but that’s, you know, less than you see at a competitor like Walmart, which is about 2/3. So they do have more tariff exposure. And it’s a bit of a double whammy with the tariffs. And then the consumer who is really value driven right now and target, you know, used to once be a beacon of unique items. They had issue with product mix. They’ve had issues with customer service and just providing the same cachet that the store once had. So I think there’s a lot going on here. And investors came into this report, hoping to see more but not quite getting what they wanted.
Caroline Woods: It’s been a very different story for Walmart this year than it has for Target. And we still like to compare the two. But what lessons can we learn from Target that could apply to Walmart, which reports tomorrow?
Christine Short: Yeah, you’re right, they are peers, both as discounters, but they have a very different story. Like I just said, even when it comes to tariffs, they have less exposure. They have a larger grocery business. And we know consumers are really looking to purchase necessities. Right now 60% of Walmart’s revenues come from their grocery business. They’re really seen as a one stop shop. So you come in for groceries, but you actually might spend some of your discretionary income as well. They’ve been negotiating with their vendors, they’ve been negotiating with the supply chain. And so as the world’s biggest retailer, it’s maybe a little bit easier for them than target to get some of these deals done. And they are committed to keeping prices lower. I know Target’s tried to do the same, but I think Walmart’s been a little more successful, especially at a time. Like I said, when the consumer really is bargain hunting speaking of peers,
Caroline Woods: Home Depot and Lowe’s are both out as well. What’s the takeaway when it comes to the home improvement space?
Christine Short: I mean, overall, both did, I think, better than expected. OK, so Home Depot did not beat on the top and bottom lines, they missed expectations. But they did hold on to full year guidance. You saw investors react positively to that.
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