I’m sure I won’t invest in Target right now, but I’ll trade it

Do I have to apologize to Doug Macmillan, CEO of Walmart (WMT), for his comments on Tuesday’s Real Money column? Not really. Walmart probably should have been warned and the balance sheet still stinks. That said, the headwinds Walmart felt throughout the first quarter of the year did not seem to be doing well anywhere else. That comment was, presumably, harsh.

Target (TGT) released the firm’s first quarter financial results on Wednesday morning, and it appears that ugliness like lightning can really be seen twice.

The target posted a GAAP EPS of $ 2.16, missing Wall Street’s expected mileage of $ 25.17B. The sales print was good enough for 4% annual growth and was able to beat Wall Street. Comparative sales rose 3.3% on top of the 22.9% growth a year earlier. Traffic increased 3.9%. The store’s comparative sales rose 3.4%, up from 18% last year. Digital comparative sales grew 3.2% over last year’s 50.2% growth. Operating margin of 5.3% was significantly below estimates and less than 9.8% a year ago, driven by various margin pressures such as creating additional inventory, steps taken to reduce inventory and improved freight and transportation costs. Where have we heard that story before? Operating income fell 43.3% to $ 1.346B as gross margins fell to 25.7% from even 30% last year.

Instructions

For the current quarter … Target expects operating income margins to remain in a wide range, concentrating around the first quarter print of 5.3%.

For the whole year … The target is expected to be low-to-medium single digit revenue growth and an operating income margin rate of around 6%.

CEO

From the press release … Chairman and CEO Brian Cornell commented, “Throughout the quarter, we have experienced unexpectedly high costs, driven by a number of factors, resulting in profits that are far below our expectations and lower than we expected. Works over time. ” Here’s what I owe to Walmart CEO Doug Macmillan for eating some crows, as I said in yesterday’s episode that Macmillan was surprised by the business environment that I didn’t think Brian Cornell would be surprised by.

Apparently both leaders were surprised and both admitted it in front of their respective public audiences. They are both honest and investors can rely on it in the future. I was angry yesterday and it was seen in what I wrote. That said, no leader is immune from the fact that Wall Street has not been warned before the release of this income when, quite frankly, both should be.

The Colonel added … “Despite these short-term challenges, our team is passionately dedicated to our guests and to their needs, providing continued confidence in our long-term financial algorithm, which expects mid-unit revenue growth, and With an operating margin rate of 8 percent or more. “

Balance sheet

Towards the end of the three-month period ending April 30, Target’s net cash position was $ 1.112B and contained inventories were valued at 15.083B. This brings the current assets up to 17.953B. Total liabilities printed at .7 20.724B. This puts the firm’s current ratio at 0.87, lowering the ratio below the 1.0 level which is fundamentally important. Excluding inventories from the equation, the firm’s rapid ratio stands at an alarming 0.14. I know fast-paced retailers aren’t as focused as they are elsewhere because they’re part of the inventory building game, but I think the value of the “swollen” inventories at this point should be taken into account.

The total assets of the target add up to $ 50.842B so that there is no entry for “goodwill” or any other obscure assets. This is due to the firm’s achievements because the brand is very well known and only the brand name has some important vague values. Total liability less equity amount $ 40.068B. This includes long-term loans and other loans of $ 11.509B. Obviously, I think the debt burden is a little higher than the cash in hand. Unlike Walmart, this balance sheet does not pass the surge test.

Transactions

On Tuesday, I wrote to you that I was in the process of exiting my long position at Walmart and considering entering into a long position with both Revenue and Costco (COST). Okay, I had a harder time getting out of WMT than I expected. I’m about 40% way there. The silver lining is that I didn’t start with either TGT or COST.

I’m really surprised that both Walmart and Target hit the balance sheet quality. Honestly, as an investor I don’t want to be in any of these names, even at this huge and sudden discount. I have no problem doing business with any of them, because trading is much more tenant in nature than investment. Traders pay for their skill-set. Investors must put up a flag and it is dangerous, especially when it comes to reading such knives.

Target stock has now completed more than 100% retracement of the March 2021 to November 2021 rally. A trader can sell TGT $ 140 17 July put this morning for as little as $ 3. That’s scary.

Maybe the cost? Costco reports next Thursday. A $ 455 / $ 465 27 May COST Bull Call Spread that can be found for 5 or less sounds attractive.

(WMT and COST are Action Alert Plus Member Club. AAP Want to be careful before buying or selling these stocks? Learn more now.)

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