How Target's Bathroom Policy Killed TGT Stock
From Cabot Investing:
I was incredulous at Target’s bathroom policy. Announced in April, the company said that it would begin to allow men to use the women's bathrooms in its stores. I immediately knew that Target’s revenue would drop, because its customer base would become disenfranchised.
How did Target’s management team not know this? Was there an executive meeting wherein the CEO and the marketing department discussed the pros and cons of this pending decision? Or did the decision solidify during a Kum ba yah moment between martinis at an executive retreat?
We all know the "pros" of Target’s bathroom policy: people want an ideal world where everybody is safe and feels good about themselves. But lots of us foresaw the "cons": if you allow men into women’s bathrooms, there will be an increase in crime against women and children, who happen to be Target’s customer base.
This is a no-brainer.
Inevitably, lots of consumers felt threatened that a major American institution—Target Corp.—was announcing open season on their loved ones’ safety. And they reacted by boycotting Target.
This wasn’t a tiny boycott. It was national in scope, with 1.4 million people signing a pledge to boycott the stores. I live in Colorado, where "men in women's bathrooms" became law in May 2008.
That was the day I realized that I could no longer send my daughters into public restrooms alone. So I understood the public's outrage over Target’s bathroom policy. However, Target’s subsequent quarterly sales weakness took investors by surprise, because Wall Street didn’t cover the boycott in their research reports.
Even today, in the three analyst reports on Target that I reviewed from three major research sources, there was not a word about the boycott. Again, Kum ba yah.
When Research Reports Avoid Uncomfortable Truths
A stock analyst’s job is to report what’s happening with a company, and make estimates as to how it will affect a company’s bottom line and its share price. But if Wall Street analysts won’t do it, I will. Because when research reports dodge uncomfortable truths, investors can’t make well-informed buy and sell decisions.
The boycott has been in place since April, and Target got burned. For the second consecutive quarter, sales were down.
"In the second quarter, our No. 1 challenge was traffic, which affected sales in all of our merchandise categories," said Target CEO Brian Cornell.
Total in-store customer traffic, which fell 2.2% in the recent quarter, hasn’t been this low since the company’s data breach in the fall of 2013—yet another infamous corporate fail. Target’s same-store sales fell 1.1% in the second quarter, while Wal-Mart’s (WMT) comps rose 1.6%.
What’s more, Target forecasts a continued drop in sales comps during the remainder of fiscal 2017 (January year-end).
Did Wal-Mart’s sales surge because their low prices enticed customers away from Target, as widely reported this month, or did Wal-Mart’s sales increase because of Target’s bathroom policy? If you take 1.4 million people's consumer dollars away from Target, and direct most of those dollars toward their obvious rival, Wal-Mart, then yes, Wal-Mart is going to have an upside surprise in quarterly sales while Target’s numbers disappoint.
But the news gets worse.
Target execs had a long-term goal of 3% growth in comparable store sales, a goal that’s looking like a pipe dream. As the company makes downward revisions on its sales goals, that can only hurt the stock price further.
In an attempt to woo those customers back, Target offered a 10% discount on everything in its stores and online on Sunday, August 28. The one-day sale event was called #TargetRunDay. Good luck with that.
As a mom, and as a woman who has encountered armed criminals in public places, my family’s safety considerations rank higher than feel-good corporate policies. My mantra is, "First, do no harm." And anybody who knows me knows that I’m vigilant against people and organizations that aim to harm my fellow citizens. Bottom line: If a retailer makes a decision that increases danger to my family, I’m going to shop somewhere else.
My recommendation is that shareholders sell TGT stock and reinvest their capital into stock of a company with strong earnings growth, low P/E, low debt levels and a bullish chart. I routinely feature such value and growth stocks in Cabot Undervalued Stocks Advisor. Join me for better stock investing ideas!