Target (TGT)

Listen to this article. Powered by Odiogo.com It is clear Bill Ackman has plans for Target. It is also clear in public he has been very complimentary of Target's (TGT) management. It is also clear that he has avoided a direct confrontation with them for over year, until now. It is also clear that management has no intention of even listening to their largest shareholder who has made investors billions doing what he is proposing Target do, unlock value.

What does it all mean? Management at Target does not have a clue that the landscape is changing out there and being outright dismissive of shareholders while sales crater and the stock languishes, is well, not a very good idea.

Ackman has an interest in 8% of Targets shares. If you are a shareholder, you should want to know, if management says his idea are bad for shareholders, how many shares do they own. The answer? .31%. Not 31, not 3.1 but POINT .31% or less than 1%. Now that includes the Board all management. All of them.

So, what are they more concerned about really? Their jobs maybe? Ackman has an interest in 25 times more stock than they do. If you are a shareholder, wouldn't that mean to you that he probably has a rather large vested interest in the health of the stock? Maybe management is truly more concern with their nice salaries & perks than the share price?

This is not to say that they do not care about it, just that their pay and benefits trump stock price.

Target (TGT) reported 2nd quarter earnings before the open this morning and what really caught my attention was the detioration in their credit card portfolio (TGT Earnings Release).

Target, a $40 billion market cap company, has its own credit card on which it has $8 billion in receivables. The quality of that portfolio has been deteriorating the last few quarters, resulting in a $139 million decrease in earnings in the segment in the current quarter compared to a year ago.

60+ day and 90+ day delinquent accounts increased to 4.5% and 3.1% compared to 4.2% and 2.9% a quarter ago and 3.5% and 2.3% a year ago. Annualized net write offs, receivables they give up on collecting and remove from their balance sheet as assets, increased to 8.7% compared to 7.6% a quarter ago and 5.4% a year ago.

If net write offs increase to 12% over the next year, that could mean an additional $300 million hit to net income, which represents about 10% of their net income over the last 4 quarters.

More broadly, this is just another indication of the distress consumers are experiencing.

Target's growth may be slowing down, due to the expansion of other general retailers into the discount designer goods market. Target attracts the majority of its customers with its reputation for "trendy chic" products. With other retailers now beginning to copy Target's business strategy, Target will find it harder to maintain its growth rate.

While Target has always been in competition with discount retailers like Wal-Mart, there has been room for them both since their goods did not overlap significantly. As Target pushes into consumables, this overlap of goods offered will increase, pushing Target more and more into direct competition with Wal-Mart. Target may suffer losses as a result of this since it cannot compete with Wal-Mart's size.

While Target has always been in competition with discount retailers like Wal-Mart, there has been room for them both since their goods did not overlap significantly. As Target pushes into consumables, this overlap of goods offered will increase, pushing Target more and more into direct competition with Wal-Mart. Target may suffer losses as a result of this since it cannot compete with Wal-Mart's size.

While Target has always been in competition with discount retailers like Wal-Mart, there has been room for them both since their goods did not overlap significantly. As Target pushes into consumables, this overlap of goods offered will increase, pushing Target more and more into direct competition with Wal-Mart. Target may suffer losses as a result of this since it cannot compete with Wal-Mart's size.

Target faces strong competition from Wal-Mart Stores (WMT), a retail giant with more than three times Target's market share. Due to Wal-Mart's size, Target cannot effectively compete in a price war, and should avoid that possibility.

Quarterly profits for Target Corp. (TGT) fell almost 41%, below Wall Street estimates, marking the sixth consecutive quarterly drop, Reuters reported. “The company faces a number of challenges on many different fronts - merchandising, how to utilize square footage, how to compete, how to increase sales incentives,” said Richard Hastings, consumer strategist with Global Hunter Securities. “The current fiscal year should be viewed very cautiously.”

“Our comparable store sales performance in July was near the low end of our -1% to +1% planned range,” said Gregg Steinhafel, president and chief executive officer of Target Corp.

Uh, Greg. Let's do a little basic math here. -1.2% is actually "greater than" -1.0% remember this little sign, -1.2 > 1.0? I think it was from "Intro to Algebra"? It is not "near the low end" Greg, it is officially "past it".

Analysts expected a decline of -.4% once again proving the fruitlessness is listening to them. The news here is not that Target missed analysts expectations just as it was not in the case of Wal-Mart. The point here is that Target missed their own expectations meaning things for them are even worse than they thought they were. Perhaps the worse news is that their CEO does not seem to realize they missed it.

Year to date, Target comp sales are down .6% vs a 4.6% rise at this time last year. That, is not good no mater what the expectations.

All of Target's sales and operations are concentrated in the United States, with no international exposure. This means that Target can be hit hard if the U.S. economy faces a downturn; Target lacks the overseas buffer that its competitors Wal-Mart and Costco Wholesale (COST) both have.