Target Shares Slide on Walmart and Amazon Worries

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Many retail stocks are higher over the past month. Investors have either received hard news, or have seen forecasts, that the largest companies in the sector, which include Wal-Mart Stores Inc. (WMT) and Costco Wholesale Corp. (COST), have begun the holiday season. Notably, Target Corp. (TGT), the second largest retailer in America, has been left out. Its shares have fallen 4% in the past month, with most of that sell-off in the past 10 trading days.

Target suffers from several disadvantages. The first is that it lives in the shadow of its major competitor Walmart, which has six times its annual revenue. Another is that it is boxed out of the higher end of the retail market by companies that cater to middle class shoppers. Macy's Inc. (NYSE: M) is Target's largest problem here.

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Target also has a much smaller online audience than e-commerce leader Amazon.com Inc. (AMZN) and Walmart. Among the 50 largest sites in the U.S. based on desktop activity, according to comScore, Amazon's unique visitor count in October was 110 million. By the same measure, Walmart's was 39.8 million. Target fell well behind at 25.6 million. Target, simply put, has fewer chances to make e-commerce sales.

The holidays are not just the holidays in the United States. Target has just over 1,900 stores in the United States and Canada. Walmart has 11,000 worldwide. Even if Walmart's sales for the holidays are not extraordinary in America, the company has thousands of stores in Mexico, Latin America and the United Kingdom. Walmart's international sales have generally grown faster than its domestic ones in recent years. Walmart's overall performance in November and December may well be fueled by its stores overseas.

Target has already signaled that its revenue for the next quarter will not be very good. When it announced its earnings for the most recent quarter, management reported:

While Target’s third quarter U.S. comparable sales increase of 0.9 percent was near the low end of prior guidance, adjusted earnings per share of $0.84 were near the mid-point of the expected range.

And:

In fourth quarter 2013, the Company expects adjusted EPS of $1.50 to $1.60, Canadian Segment dilution of (22) to (32) cents and (2) cents related to the expected reduction in the beneficial interest asset. This performance would lead to fourth quarter GAAP EPS in a range centered around $1.26.

Wall Street expects some retailers to outperform their expectations, and some of those have even hinted they will do better. Target has not taken a place on either of those lists.

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