Breakout

Move Over Target! Dollar Stores Are Taking Share: Schoenberger

Breakout

Target (TGT) shares are getting smacked in early trading after reporting first-quarter earnings results that missed expectations and reduced guidance for the full year. America's second largest discount merchant reported earnings of 82-cents on revenues of $16.7 billion. Wall Street was looking for earnings of 85-cents on revenues $16.82 billion. For the full year Target also said it expects to report $4.70 - $4.90 a share compared to prior guidance of $4.85 to $5.05.

Shares of Target were at all-time highs heading into the morning and are still up more than 15% for the year, even as estimates have come down. Wall Street seems willing to look past light numbers in the medium term and will apparently forgive fleeting hiccups on EPS. What hasn't been discussed much is growing evidence that it's not just Amazon (AMZN) eating into Target's market share.

Related: Look Out Wal-Mart! Here Comes Amazon

"In 2012 and 2011 the three major dollar stores out there actually increased their square footage by 5% whereas Target and Walmart (WMT) remained flat," claims Todd Schoenberger, managing partner at LandColt Capital. "The only hope for Target is that the economy is improving because that's going to give people a little bit of 'oomph' to go out and spend some of that discretionary income."

Target was once impervious to share threats from the Dollar General's (DG) of the world. Dollar stores were rundown flea markets located largely in areas too small to support big box stores. Over the last few years the line between which socio-economic group shops at a particular retailer have been blurred. Walmarts and Targets can now be found right down the street from one another, usually with a small footprint discount store stuffed in between.

With America's two biggest mass merchants sitting near all-time highs it's a good time to consider the possibility that it's not just online merchants picking away at Big Box retailers, but the dollar stores as well. As Target and Walmart both look overseas for growth their results suggest they better stay focused on what's happening in the U.S.

Shareholders might want to consider stepping aside while Target gets its arms around exactly where it's going to find more avenues to growth.

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