🎯 Target’s anti-bull’s-eye

Thursday, May 19, 2022 by Robinhood Snacks |
Retail earnings this week (Jeffrey Coolidge/Getty Images)

Retail earnings this week (Jeffrey Coolidge/Getty Images)

Retail earnings this week (Jeffrey Coolidge/Getty Images)

Retail earnings this week (Jeffrey Coolidge/Getty Images)

Yesterday’s Market Moves
Dow Jones
31,490 (-3.57%)
S&P 500
3,924 (-4.04%)
Nasdaq
11,418 (-4.73%)
Bitcoin
$29,069 (-4.42%)

Hey Snackers,

A bear wandered onto a Utah middle-school campus the other day and was safely relocated — we’re guessing to Wall Street.

Investors were back to feeling bearish, sending the S&P 500 down a whopping 4% in its worst day since June 2020 — and the Nasdaq’s plunge was even worse. Driving the market blues: a major retail selloff, from Costco to Dollar Tree, started by Target...

Carted

1. From Target to Walmart, America’s largest retailers are eating inflation costs to stay ahead — and their bummer earnings reflect it

Clear aisles, full carts... can lose. Target stock plunged 27% yesterday in its worst day since Black Monday in 1987. Tarjay missed the profit bull’s-eye, taking home just $1.3B last quarter compared to $2.4B a year earlier. Despite high inflation, Target’s trying not to raise customer prices this year. Instead of charging you more for made-in-China floral dresses, it’s eating the extra costs.

  • Strategy: Target wants to keep prices affordable in hopes of stealing market share from Walmart, Amazon, and other retailers.
  • Problem: Transportation costs this year will be $1B higher than Target had forecast, which means it's spending more to get Keurig cups and shower caddies on shelves.
  • Problem (cont.): Consumers are buying fewer high-margin goodies like bikes, flat screens, and air fryers, and more lower-margin basics like food.

#Flation starts hitting… the bottom line. Shrinking earnings have emerged as a theme for the US’s largest retailers. On Tuesday, Walmart reported that its quarterly profit shrank 25% from last year.

  • Like Target, Walmart tries to undercut competitors on price to gain market share (especially with grocery staples).
  • Unlike Target, Walmart execs suggested they’d have to raise prices after this “disappointment” of a quarter. Its stock is down 18% since earnings.
  • Unlike both: Discount retailer TJ Maxx notched higher profits and fatter margins after raising prices for off-the-rack clothes. Shares popped 11% yesterday (#outlier).
THE TAKEAWAY

The bottom line matters more… For investors, profit is often more important than sales for established corporations (with young startups, growth is often the focus). While sales rose at Target, Walmart, and Amazon, the major profit hits they took overshadowed that growth — cue: the stocks got pummeled. Meanwhile, TJ Maxx missed sales expectations but surged on its profit win. We’ll see whether Ross and Kohl’s also put the bottom line first when they report today.

Cube

The Block Head has spoken… and he says crypto concert tix are the future. Jack Dorsey, “Block Head” at Block (translation: CEO at the biz formerly known as Square) just outlined plans for the company’s future. Block’s changed a lot since its last investor day five years ago: it bought Jay-Z’s music streamer Tidal for $300M last year and fintech Afterpay for $29B this year. Here’s what’s next:

  • Not your grandma’s card-reader biz: Dorsey said Block’s not a payment company but an “ecosystem” spanning fintech, music, and crypto.
  • Bullish on BTC: Block’s building bitcoin wallets, mining systems, and developer tools because Dorsey believes bitcoin will become the internet’s native currency.
  • Banking on Gen Z: Block wants to be a payment superapp for younger users. Think: buying Kendrick Lamar tickets and crypto, all inside the Cash App (Block’s Venmo rival).

There are plenty of ways to pay… but Block’s superapp strategy could distinguish it from a crowded payments field. The company started in 2009 as a point-of-sale disruptor, selling those swipe-y consoles used by your local coffee shop. But since then, Toast, Clover, and others have launched competitors, and now Apple’s reportedly testing a tap-to-pay iPhone feature that could blow up the industry.

THE TAKEAWAY

It’s a tough time to be a tech biz… even a profitable one. Tech stocks have plunged in recent months as investors ditch “disruptive” but unprofitable tech giants (think: Uber, Peloton, and Airbnb) to invest in slow-and-steady companies with consistent cash flow (think: energy, utilities). Even though Block has been profitable for the past three years, its blockchain-powered ecosystem could scare off tech-phobic investors looking for stability.

What else we’re Snackin’

  • Brutal: Gas prices are above $4/gallon in all 50 states for the first time, just ahead of peak summer driving season. US households are spending an average of $5K/year at the pump, up from $2,800 a year ago.
  • Windfall: The steep rise in oil prices has been very good for Saudi Arabia’s state-run oil titan, Aramco. So good that it’s considering spinning off its trading arm in an IPO that could be worth $30B.
  • Goooal: US Soccer announced a landmark agreement to pay the men’s and women’s teams equally. Both squads will also pool their World Cup earnings, which have always been more lucrative for the men (even when they lose).
  • Weak: China’s Tencent had its worst quarter since going public in 2004, reporting a profit half of what it was a year ago. The gaming giant’s been walloped by Covid lockdowns and a crackdown on game licenses.
  • Boot: Tesla was kicked off the S&P’s ESG (environmental, social, governance) index as part of its annual rebalancing, partly because of the EV leader’s “lack of a low-carbon strategy.” Exxon remains in the index.

Snack Fact of the Day

There are reportedly more Airbnb listings in NYC than there are apartments for rent

Thursday

  • Jobless claims
  • PGA Championship begins
  • Earnings expected from Bath & Body Works, Ross, Grab, BJ’s, Kohl's, and Palo Alto Networks

Authors of this Snacks own: bitcoin and shares of Walmart, Amazon, Block, Tesla, Apple, and Uber

ID: 2209289