TGT Fell - Weak US Market or Earnings or Both ?
On Wed, 21 May 2025, US major stock indexes fell big time, as investors worried about a deteriorating US fiscal outlook.
US Treasury Bond.
The US dollar dipped as Treasury yields climbed, following a poorly received $16 billion sale of 20-year US bonds by US Treasury Department.
The soft demand reinforced concerns that investors are shying away from US assets.
After the Treasury auction, yields on the 20-year debt rose to 5.127%, the highest since November 2023.
Meanwhile the 30-year bond yield rose 11.5 basis points to 5.0817% from 4.967% late on Tuesday. (see above)
I wonder if Treasury Secretary Scott Bessent still think that Moody's a "lagging indicator" of economic and fiscal conditions as per his interview with NBC’s "Meet the Press" with Kristen Welker.
By the time market called it a day:
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DJIA: -1.91% (-816.80 to 41,860.44).
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S&P 500: -1.61% (-95.85 to 5,844.61). Posted 15 new 52-week highs and 4 new lows.
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Nasdaq: -1.14% (-270.07 to 18,872.64). Recorded 53 new 52-week highs and 92 new lows.
Volume on US exchanges was 19.39 billion shares, compared with the 17.5 billion average for the full session over the last 20 trading days.
One Big Beautiful Bill.
Apart from Treasury woes, investors also grew increasingly worried about the US government's fiscal outlook, particularly the impact of Trump’s proposed tax-cut bill, that has faced significant Republican infighting.
Accordingly, the nonpartisan Congressional Budget Office estimated the bill will add $3.8 trillion to existing US's $36.2 trillion debt over the next 10 years.
What’s more, the current tax cut bill that is an extension to Trump’s 2017 Tax Cuts and Jobs Act, when legislated, would make permanent (essentially) all of the individual income tax breaks from the 2017 law and temporarily cut taxes on tips and overtime.
On the surface, it looks to benefit the lower income.
According to Wharton School of the University of Pennsylvania:
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The bill’s gains would go disproportionately to the rich.
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Top 10% of earners would receive about two-thirds (65%) of the total value of the legislation.
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Households in the bottom 20% would lose about $1,035 in 2026 due to cuts to (a) Medicaid, (b) food stamps and (c) other changes.
In retrospect, Moody’s recent downgrade of US credit rating from Aaa to Aa1 seems justified now, looking at the big picture.
Target - Retail Giant Reports.
On Wed, 21 May 2025, $Target(TGT)$ released its Q1 2025 earnings, 6 days after its peer & competitor $Wal-Mart(WMT)$
As reported by LSEG:
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Earnings per share (adjusted): was $1.30 vs $1.61 expected vs Q1 2024’s $2.03; a -35.96% YoY fall.
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Revenue: was $23.85 billion vs $24.27 billion expected vs Q1 2024’s $24.53 billion; a -2.66% YoY decline.
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Net Income: was $1.04 billion vs Q1 2024’s $942 million, a +10.4% YoY gain.
Outlook / Current Quarter Guidance.
(1) Q2 2025.
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Expects Q2 2025 comparable sales to be flat to up +2.0%.
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Projects Q2 2025 EPS (adjusted) to be in the range of $2.10 - $2.40
(2) FY 2025.
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Sales: Expects a low-single-digit decline for FY 2025 vs previous forecast of net sales growth of about +1.0%.
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Earnings per share (adjust) is expected to be between $7 - $9, vs previous estimates of between $8.80 - $9.80.
(3) CEO’s Address.
CEO Brian Cornell attempted to explain TGT’s less than stellar earnings results:
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Falling consumer sentiment.
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Uncertainty about tariffs.
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Backlash to its rollback of key diversity, equity and inclusion (DEI) initiatives for its performance.
For remaining FY 2025, TGT will focus to grow its market share in all 35 product areas/categories.
Price Movement.
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On Wed, 21 May 2025, TGT’s shares fell by -5.21% (-$5.11) to $93.01 per share. (see above)
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On Thu, 22 May 2025, TGT It is poised to open lower at $92.68, in the midst of a US market correction.
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If it is any consolation, Walmart that continued to profitable in Q1 2025 fell on Wednesday and is slated to open lower on Thursday as well.
Roundup.
Investors should be aware that TGT’s annual revenue has been roughly flat for 4 years in a row.
Sales have been weaker in many of the discretionary categories that TGT is known for, eg. Home decor, apparel & accessories etc, as consumers have become increasingly selective & cautious about spending.
Is there hope for Target to return to profits ? If it is already struggling now (at the start of Trump’s tariffs woes), will it be able to survive, should tariffs’ challenges continue to worsen?
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Do you think Target will be able to turn things around, given that it tries not to increase prices ?
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Do you think Walmart is a better bet than Target during these uncertain times’?
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