Latest / Bloomberg Intelligence / Wolfe's Mushkin: Leery of Anything in Food, Broadline Sectors

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Wolfe's Mushkin: Leery of Anything in Food, Broadline Sectors · Bloomberg Intelligence

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  Speaker 1: This is taking stock. I'm capping Hayes along with kim
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  Speaker 1: Fox a difficult retail environment. In indeed, target share price
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  Speaker 1: is down six percent today after it cut its annual
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  Speaker 1: forecast on slumping sales last quarter lows losing ground to
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  Speaker 1: home depot. It also missed its two quarter comparative sales estimate. Pam,
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  Speaker 1: we may not be as folks stunt typing as we
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  Speaker 1: were before, but we still need to snug ray higher
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  Speaker 1: Target shares slumping six percent after cutting its annual forecast.
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  Speaker 1: The retail chains slump last quarter, hit by what CEO
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  Speaker 1: Brian Cornell describes as a quote difficult retail environment. Shares
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  Speaker 1: of urban Outfitters and Children's Place both higher after the
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  Speaker 1: five minutes to go ahead. Of the close SMP five
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  Speaker 1: I'm Charlie Pellett. That's a Bloomberg business flash. This is
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  Speaker 1: taking stock with Kathleen Hayes and Pim Fox on Bloomberg Radio.
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  Speaker 1: The shares of Target. They are down more than six
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  Speaker 1: percent right now after reporting second a quarter earnings that
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  Speaker 1: fell nearly ten percent. They also lowered their sales estimate
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  Speaker 1: for the remainder of the year, citing a difficult retail environment.
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  Speaker 1: Here to tell us more, Scott Mushkin, Managing director and
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  Speaker 1: senior Staples retail analyst at Wolf Research. Scott, thanks very
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  Speaker 1: much for being with us tell us about what's going
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  Speaker 1: on at Target. Is this going to be a turnaround
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  Speaker 1: story or is this just going to be a slow
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  Speaker 1: drip of bad news? Well, Pim and and and Kentheen,
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  Speaker 1: thanks for having me back. I mean, I think the
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  Speaker 1: challenge here through all of Staples retailing um is that
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  Speaker 1: it's a mess. Uh. We've got a lot of price
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  Speaker 1: competition coming in our pricing surveys we go into markets
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  Speaker 1: and do pricing surveys and falling off a cliff. The
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  Speaker 1: government's CPI food is now down one point five some
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  Speaker 1: of the biggest moves down we've seen in a growing economy.
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  Speaker 1: And targets, you know, they're they're struggling. They're struggling to
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  Speaker 1: turn around that food business. Um, and they're struggling to
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  Speaker 1: get traffic into the stores. You layer on top of,
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  Speaker 1: on top of that, the impact of Amazon. We put
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  Speaker 1: out a report a few months ago called the Amazon
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  Speaker 1: Generation and in that report, it looked at the categories
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  Speaker 1: women wanted to purchase more online and it was kind
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  Speaker 1: of like the who's who of targets, signature categories, what
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  Speaker 1: they call the signature categories. So unfortunately, even though the
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  Speaker 1: strategy Brian Cornell is is laid out here is good, Um,
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  Speaker 1: they're facing an awful lot of headwinds, Just an awful
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  Speaker 1: lot of headwinds. So how much is it uh a
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  Speaker 1: macro headwinds story forces that they can't control, they just
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  Speaker 1: have to deal with, like, uh, consumers just not spending
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  Speaker 1: as much this summer. How much is it a target
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  Speaker 1: specific problem? I mean, some of its targets specific, but
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  Speaker 1: certainly I think you're right. I mean, I think if
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  Speaker 1: you look at the backdrop, it's not set up well. Um.
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  Speaker 1: Part of what we talked about that Amazon Generation report
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  Speaker 1: is the demographics. The thirty five to fifty four year
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  Speaker 1: old demographic is negative. That is a main shopper in Target.
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  Speaker 1: If you look at the millennials and having babies. If
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  Speaker 1: you looked at the birth rate that came out a
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  Speaker 1: couple of weeks ago from the Census Bureau, it's low.
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  Speaker 1: Target feeds off of young moms. They're very popular. Target
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  Speaker 1: is very popular as young moms. Um. If you look
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  Speaker 1: at the building that's gone on in in retail, Um,
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  Speaker 1: we're just we have too many assets chasing too few
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  Speaker 1: sales at this stage. So there's definitely some macro problems. Um.
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  Speaker 1: But you know, some of it's also Target, where before
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  Speaker 1: Brian got there, they had kind of underinvested in the business.
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  Speaker 1: They were up in Canada, so they lost a lot
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  Speaker 1: of their momentum, a lot of their tarj uh and
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  Speaker 1: it's taking the company longer to turn this around, particularly
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  Speaker 1: in the food area. Hey Scott, if you are a
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  Speaker 1: holder of Target, do you want to get out now?
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  Speaker 1: You know it's it's cheap. So that's that's the struggle, right.
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  Speaker 1: The company's trading, you know, kind of a little below
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  Speaker 1: it's five year average on a P basis UM. So
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  Speaker 1: our current ray is is pure perform, which is kind
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  Speaker 1: of a hold. UM. But the entire sector, both the
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  Speaker 1: broad line sector and the food sector, we we rate
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  Speaker 1: that underweight. So we don't like the sector. So you've
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  Speaker 1: got to kind of see it in that that that
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  Speaker 1: that vein so we think there's other places too short
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  Speaker 1: and get out. Kroger we downgraded to underperform, which is
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  Speaker 1: a company we've had to buy on for a long time.
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  Speaker 1: We did that a few about a month or two ago. UM.
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  Speaker 1: So that's our rating. But it's a tough, tough sector UM,
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  Speaker 1: and I think you've got to be really leery of
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  Speaker 1: owning anything in it at this stage. Well, let's have
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  Speaker 1: a look at Lows then, because they also lower their
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  Speaker 1: second quarter just at orneys for share dollar thirty seven.
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  Speaker 1: They asked me was dollar forty two. So there was
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  Speaker 1: a pretty big miss there, you point out in a note,
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  Speaker 1: and so does our Bloomberg story that they're losing ground
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  Speaker 1: to Home Depot. Yesterday, we had the chief economist of
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  Speaker 1: Home Advisor on and it seems this is a bad
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  Speaker 1: thing for lows because he was talking about the number
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  Speaker 1: of people who are spending money on home improvement now
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  Speaker 1: paying more money to buy bigger ticket purchases at Centa.
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  Speaker 1: What's going on with lows? You know? So in the
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  Speaker 1: home depot numbers came out yesterday, right, and so this
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  Speaker 1: has been one of the sectors that seems to be
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  Speaker 1: doing well. We call it a zombie economy. We've got
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  Speaker 1: kind of slow growth rise and cost, not a lot
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  Speaker 1: of demand. But on the home side, things have been
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  Speaker 1: a lot better um and both home depot and Lows
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  Speaker 1: have been exceeding expectations pretty handily over the last a
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  Speaker 1: couple of years. Now. Even home Depot Home Depose report
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  Speaker 1: was very good yesterday, but it wasn't outstanding if you
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  Speaker 1: look at the sales forecast. We've actually we this morning
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  Speaker 1: we lowered kind of our outlook on sales now still
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  Speaker 1: some of the best in retail. I mean there's a
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  Speaker 1: five cops for the third quarters what we think, and
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  Speaker 1: that's really good, but just down a little bit. So
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  Speaker 1: then transitioning into lows kind of the same thing. Like
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  Speaker 1: the home business is much much better than a lot
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  Speaker 1: of retail, but it too seems to be slowing a
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  Speaker 1: little bit um and it's a concern. I mean, one
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  Speaker 1: of the things when I was listening to coming on,
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  Speaker 1: listening to you guys talk about the Fed in the
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  Speaker 1: Fed Minutes, I mean, I've been trying kind of saying that,
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  Speaker 1: you know, maybe Janet Yellen's the modern day Marie Antoinette,
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  Speaker 1: that she's instead of let the meat kick, let them
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  Speaker 1: meat money. Like we just you know, we're just not
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  Speaker 1: moving this economy. It's a zombie economy, and it's even
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  Speaker 1: spilling a little bit into some better sectors. And I
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  Speaker 1: think that's the story of lows really well. Scott, thank
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  Speaker 1: you so very much for joining us. So when you
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  Speaker 1: see the consumers slowing down and it uh in the
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  Speaker 1: first quarter, of course, A contributed to most of the
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  Speaker 1: growth we saw. It's a where some sign but so
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  Speaker 1: far it doesn't bother the stock market. And we'll see
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  Speaker 1: if the Fed can let the consumers eat money for long.
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  Speaker 1: It's Scott much gonna senior Retail at Staples Analysts at
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  Speaker 1: wolf Or Research. I'm Kathleen Hayes along with pim Fox,
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  Speaker 1: and this is Bloomberg coming up on taking stock, What
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  Speaker 1: this year. Should you buy stocks or is it time
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  Speaker 1: to sell. We'll find out