I am hoping Target (TGT) shareholders are getting sick of the current strategy by management of sitting back and doing nothing, because those are the results operations are getting.
Here are the latest retail figures.
Here is my problem. Wal-Mart (WMT) has gone back to its “low price” message with consumers and clearly it has worked. They cut back expansion plans and plowed that money into improving existing locations. Sears Holdings is currently in a big push for its appliance sales and internet and both are working. Target, has gone, well, fetal.
Now, the environment out there is clearly very tough, of that there is no doubt. But Target has gone from outperforming Wal-Mart to getting lapped by it. It is one thing to have sales sliding and to be taking steps to stop or reverse it and it is another entirely to do nothing about it.
Curling up in a ball and “waiting for economic conditions to improve” is not a strategy. We may not see actual economic growth until late 2010-2011. Are shareholders prepared to wait until then? Is the theory that people will just return to Target when things get better? Is it a case of current (and becoming entrenched) shopping patterns being reversed without any effort on managements’s part?
Recessions are where the best management shows as they use it as an opportunity to expand market share and entrench their brand with the consumer. Now, Target COULD do those things if they freed up some more cash. IF they choose to put even some of Bill Ackman’s idea to work, that cash would be there.
If I had wrote here last year that at this time this year there would be more positive news coming out of Sears than Target people would have said I was insane, yet that is precisely what is happening now.
Target shareholders are lucky in that they have a real viable option to them other than selling shares. They can elect Ackman’s slate of nominees to the Board and start to see some changes at Target, or, they can do what management is and do nothing….and get nothing..
Disclosure (“none” means no position):Long SHLD, WMT, none
4 replies on “Target Continues It’s Slide”
What you’ve outlined is the distinction between those who think like businessmen and those who think like speculators.
Ackman’s plans are nothing but short term ways to make the stock jump, to put his call options and total return swaps in the money.
Basically he got the idea to copy Ed Lampert’s Sears strategy — sell of the credit cards, unlock real estate value — but to execute it himself.
This is because he was not pleased as a passive Sears investor. Why? — because Ed Lampert is a real businessman with an eye on creating long-term value, not short-term moves to lift the stock price!
I don’t think it’s any shock that Target’s management isn’t receptive to Ackman’s ideas. And saying that business results are lagging Wal-Mart is just disingenuous.
It’s like claiming that Lexus sales are underperforming Toyota sales because of the recession, so the answer is for Lexus to cheapify their product and begin competing on price.
Also, the argument about “freeing up cash” is bogus as well: Target produces immense free cash flow.
The board representation argument makes sense; but outside of that, as an investor in Pershing Square IV, I have scarcely seen a bigger disaster.
investor v speculator could not disagree agree more.
also, the lexus/toyota comp. does not hold. walmart has raised its game with better merchandise & cleaner stores. put another way, they are a better run target now. the cost scenario you outline doesn't hold either. food? greeting cars? tv's? sporting gooods? these are pure cost items for consumers that walmart is selling cheaper because its inv. and procurment channels are better.
walmart with the iphone over target? this my point. walmart has raised its game while target has done nothing
Target does produce fCF. it is also sitting on massive CC losses it needs to cover. sell them and the problem is gone
What I meant is that Target targets a different type of consumer, which Ackman outlined in his initial analysis.
He said that Target caters to higher income consumers who have more discretionary income and thus will not be as negatively influenced by an economic downturn.
He said the same thing about Borders. Of course, now he's got a different sales pitch, to influence the votes of Target shareholders who are upset that their stock is down, even though it is still outperforming the S&P 500.
My point with the Lexus/Toyota comparison is that you're talking about different income brackets.
Wal-Mart caters to the poorest people in America, and this is obvious when you go there. In fact, many people do not go to Wal-Mart — they go to Target — for this very reason.
So it's no shock that Wal-Mart is doing better in the current economy; so is Family Dollar and many other companies that compete on price, and not style or quality.
But Ackman is coming up with a fancy sounding analysis to address problems that aren't even there.
The credit card issue is incredibly minor relative to Target's complete picture. And his real estate plan is just a total waste of human brainpower.
Basically this Target Pershing IV investment was a total mistake. Ackman either should've picked Anheuser-Busch instead, or had the patience to sit and wait for a real opportunity to come.
But here's the most important question: Given all the opportunities available right now, is Target stock currently the most attractive one?
I don't know anyone crazy enough to say "yes" to that…
Wow, the Target proxy that came in the mail is very, very convincing. Bill Ackman definitely is NOT on strong ground with his argument.