• Research

Mar 6, 2018

S3 Analytics: Target Quarterly Results Hit and Miss

Target Corp (TGT) reported mixed quarterly results with EPS of $1.37, which was down 5.5% year-over-year, and revenues of $22.27 billion, which were up 10.1% year-over-year. Target also projected 2018 full year revenues of $72.18 billion, which is only a 0.4% increase year-over-year and below 2013-2016 levels. Trading in the pre-market hours had TGT down 1% but mid-morning trading has TGT down 5.1%.

Target short interest exposure is $3.2 billion and 25% off its late January year-to-date high of $4.3 billion, but 16% higher than 2017’s $2.5 billion average short interest. Traders were shorting into Target’s 15% price increase in January but by the beginning of February had reduced their exposure and bought to cover a quarter of their outstanding shorts.

Target is the largest short in the Non-Internet Retail sector, making up nearly 10% of the overall $35.3 billion of short exposure in the sector. Short exposure in this sector has increased by $1.2 billion, +3.8%, over the past year. But over the past month, short interest in the sector has declined by $811 million, with most of that decrease in the Home Improvement (down $728 million) and Retail Apparel (down $328 million) sectors. Short sellers turned their focus on Department Stores, Computer & Electronics Retailers and General Merchandise Retailers with their short interest increasing by over $1.1 billion.

Target short sellers were up $111.5 million in year-to-date mark-to-market profits in 2017, but by the end of January 2018 they had given back all of their profits and more, down $470.0 million in January mark-to-market losses. Target’s stock price traded in a tight range in February and March prior to today’s price move and shorts were only down an additional $17.9 million in mark-to-market losses in the last five weeks.  With today’s -$3.81 stock price decline, shorts have recouped a third of their year-to-date losses and are up $162.5 million in mark-to-market profits this morning. Total year-to-date mark-to-market losses are now $301.9 million.

With short sellers increasing their exposure to General Merchandise Retailers over the past month and Target posting less than stellar quarterly results we would expect TGT’s short interest to increase and possibly heading back towards the $4 billion level it hit in late January. This is more likely to happen if Amazon.com (AMZN) and Walmart (WMT) continue to pressure Target’s market share. Target’s cost to battle Amazon Prime and Walmart’s push into food, apparel and home decor is taking a toll on its bottom line. Target must continue to spend on technology and infra-structure to support its home delivery, curb side pick-up and logistics expansion, which will continue to affect its margins. Short sellers are looking for both revenues and net profits to suffer as a result.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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