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Hey Traders,
Bed Bath and Beyond is soon to go the way of the dodo bird, as is David’s Bridal.
In the coming years we will see more retailers go to zero.
And it’s not like this is new – remember Montgomery Ward? Wieboldt’s? Woolworths?
Retailers die all the time.
When a retailer dies, though, it makes others stronger.
Two clear winners from Bed Bath and Beyond dying will be Walmart (Ticker: WMT) and Amazon (Ticker: AMZN).
But there will be others.
One name I want to take a hard look around all of this is Target (Ticker: TGT).
Target was flying high in 2021. Then its April 2022 earnings hit, and the stock tanked.
With the stock trading at $161 a share, is the company a buy … or a “bye”?
Let’s dig in.
The Good
Target is going to pick up the college kid sales.
Starting from my freshman year at Villanova until I graduated, the pre-off-to-school ritual was my mom taking me to Bed Bath and Beyond to get all the college stuff I needed.
If that was today, I’d likely be going to Target, not Walmart or Amazon.
That may change in Amazon’s favor as time passes, but right now that’s Target’s torch to take.
Bed Bath and Beyond did 6 billion in sales in the last year, and if Target plays its hand right it will pick up a chunk of that.
People that like actually going to the store, like Target.
The stores have wearable fashion, a decent grocery, and just about everything in between.
Fashion is particularly interesting to me: the company’s fashion sense is pretty darn good.
If you like low prices and clothes that look fashionable, you’re going to pick Target over Walmart.
With the economy softening, we could see a group of people migrate clothing buys from a Nordstrom (Ticker: JWN) or Macy’s (Ticker: M) to Target.
Frankly in the case of Macy’s, it is NOT that big of a drop in quality– but it is a big drop in price.
Target makes a ton of money with cash flow per share at near 12, and it pays a nice dividend of near 4 dollars.
The Bad
The words that haunt Target: Amazon Prime and Walmart Plus.
While Target’s online presence is decent, they did not make the jump and/or were unwilling to face the near-term losses of putting a strong push into a subscription service.
How many of you reading this know that Target has a subscription service?
It does … they just don’t push it the way they do at Walmart and Amazon.
As subscription services take off (which they already have) they could leave Target in the dust.
JWN has a beautiful website, how has the stock done?
Target may be on that path.
Looking at the numbers, even with the haircut the company’s had, the EPS is still 27. That seems high.
While the company has a mostly strong balance sheet, the price of the stock is a bit lofty.
Target should at the cost of a dividend put a serious investment into its subscription service.
It would draw in suburbanites in a way that Walmart likely would not.
The question is … will they make the jump?
The Verdict
My guess is NO.
And the company, while likely to persist for a very long time and full of loyal customers, is not a buy right now.
If we see the PE get back down to 15-18 range I would be willing to jump in…
But that means buying the stock near 100.
Questions about that? Leave a comment below!
Your Only Option,
Mark Sebastian