Is Target (TGT) in decline?

Market favorite Target (TGT) is having a hard time. The retail legend’s share price fell from $252.05 on 18 November 2021 to $157.86 on 22 November 2022.

Moreover, “organized retail crime” cost Target (TGT)) $400 million in the first 10 months of 2022, Chief Financial Officer Michael Fiddelke claims. To explain, Fiddelke thinks gangs of thieves are pillaging Target stores. Interestingly, Fiddelke fears thieves could cost Target $600 million in all of 2022.

Organized Retail Crime Threatens Target

To elaborate, Yahoo! Finance says a “Target spokesperson” blames the losses on “organized retail crime” in an e-mail.

Several retailers, including Rite-AID (NYSE: RAD), report big losses to retail theft. The California Highway Patrol (CHP) has deployed an Organized Retail Crime Task Force to combat retail thieves in the Golden State, ABC 7 reports.

Organized retail crime is so bad, California Governor Gavin Newsom (D-San Francisco) is taking action. The governor signed a new law, Assembly Bill 331, that will expand the CHP’s Organized Retail Crime Task Force. Assembly Bill 331 also appropriates $30 million to help district attorneys prosecute organized retail criminals, and $225 million to help local law enforcement fight organized retail crime.

The CHP has made 1,296 investigations into organized retail crime, a press release from Newsom’s office claims. CHP investigators arrested 645 suspects and recovered 271,697 items of stolen merchandise worth $26 million.

Is Target Losing Money?

I don’t think organized retail crime is a threat to Target (TGT) because the company reported a quarterly gross profit of $6.838 billion on 31 October 2022. However, the quarterly gross profit fell slightly from $6.869 billion on Halloween 2021.

In contrast, Target’s quarterly operating income fell from $2.01 billion on 31 October 2021 to $1.022 billion on 31 October 2022. However, the quarterly income rose from $321 million on 31 July 2022.

Conversely, Target’s quarterly revenues rose from $26.652 billion on 31 October 2021 to $26.518 billion on 31 October 2022. Stockrow estimates Targets revenues grew by 3.38% in the quarter ending on 31 October 2022. Quarterly revenue growth fell from 13.34% in the quarter ending on Halloween 2021.

Alarmingly, Target’s quarterly operating cash flow fell from $2.175 billion on 31 October 2021 to $599 million on 31 October 2022. However, Target’s quarterly ending cash flow grew from -$1.615 billion on 31 October 2021 to -$163 billion on 31 October 2022. Unfortunately, Target borrowed money to make up losses. The quarterly financing cash flow rose from -$2.672 billion on 31 October 2021 to $1.023 billion on 31 October 2022.

Target has less Cash and More Debt

Target (TGT) has less cash and more debt. For example, the cash and short-term investments fell from $7.753 billion on 31 October 2021 to $954 million on 31 October 2022. Yet the Total Debt grew from $15.499 billion on 31 October 2022 to $16.444 billion on 31 October 2022.

There has been some growth at Target. The Total Assets grew from $54.411 billion on 31 October 2021 to $55.615 billion on 31 October 2022. So Target has less cash but growing value.

Hence, Target’s popular dividend could disappear soon. Until then I consider Target a splendid dividend stock. For instance, Target scheduled eight $1.08 dividends between 3 March 2023 and 10 December 2024. Overall Target shares offered a $4.32 forward dividend and a 2.74% forward dividend yield on 22 November 2022.

I predict Target’s share price will collapse if the dividend goes away. Yet I cannot see how Target (TGT) can preserve the dividend under current conditions.

Can Target (TGT) Compete?

Currently, Target operates 1,948 stores and 51 supply chain facilities (warehouses and fulfillment centers) in the United States. In contrast, Walmart (WMT) operates 4,720 Walmart stores and 600 Sam’s Clubs stores in the USA, MWPVL estimates.

Walmart operates 208 distribution centers, fulfillment centers, dark stores, and warehouses in the United States. To explain, a dark store is a retail store they convert into a fulfillment center.

Amazon (AMZN) operates 2,297 logistics facilities worldwide, MWPVL estimates. There are 1,245 logistics Amazon logistics facilities in the USA and 1,043 in other countries, MWPL estimates. Plus Amazon has plans for 75 future logistics facilities in the United States.

Hence, I think Target is at a disadvantage when it competes with Walmart and Amazon. Plus, Target could face a new behemoth if supermarket operators Kroger (KR) and Albertson’s combine. I estimate Kroger-Albertsons could operate 5,032 stores if the Federal Trade Commission (FTC) allows the merger.

I predict Target will have to merge with another retailer such as Kroger-Albertson’s to survive. Until then, Target’s stock could be worth examining because its revenues are still growing.