2/03/19~ Below is a note written by CEO Keith McCullough on why we added Target (TGT) to the short side of Investing Ideas this week:
|Updated view on Old Wall Retailers? A: Still Short. That includes both the ETF (XRT) and companies that Brian McGough remains The Bear on like Target (TGT) which has bounced on decelerating volume to lower-highs within a Bearish @Hedgeye TREND.|
Here’s what Brian wrote recently about this sub-sector of names in his Institutional Research product (on me today!):
“Holiday sales are flowing in on key retailers, several of which sit on our best ideas short list (KSS, TGT, M). Ultimately we are not surprised to see these stocks getting hit, especially after the post-Christmas bounce.
Our view heading into holiday results was that sales should generally look good. After all the consumer is at peak, companies are fully stocked with inventory, and data points were indicating that sales were solid heading into Christmas. However we expect margins to underperform relative to the sales performance with inventories building, more incremental $ coming frm ecom vs B&M (see slide below), online free shipping battles, and high wage growth. Retailers have struggled to put up material(or any) EBIT growth while the consumer has accelerated to the best level seen in a decade.
As we look at 2019 we think US GDP and the US consumer slow, while gross margin pressure increases, and wages still march higher. Street EPS numbers for KSS and TGT imply mid-single-digit growth as the tax rate is no longer a help.
We think the real result is more likely to be 10-20% declines in EPS.
“Sell on green”, KM