Long-term trends often get obscured by short-term volatility. Big Retail is a prime example, especially considering developments in the sector in the past year to year and a half. It may seem surprising now, but a 10-year chart of Target Corp. (NYSE: TGT) and Wal-Mart Stores Inc. (NYSE: WMT) plotted against the broader S&P 500 and the Dow 30 shows remarkable stability and constancy for the large retailers. Both the Dow Jones Industrial Average and S&P 500 are up close to 50%, while Wal-Mart and Target are slightly behind at 40% and 32% higher respectively.
One other notable feature of the chart is that Wal-Mart shares are going through what Target went through in 2014: a large decline, followed by a decent recovery. Both chains have had to downsize lately, with Wal-Mart closing 269 stores globally and Target exiting Canada and handing its pharmacy business to CVS Health Corp. (NYSE: CVS) in an attempt to focus on core business.
Target’s upcoming earnings on February 24 will provide good clues as to the direction of Big Retail for the years to come, essentially whether it will continue to keep general pace with the S&P and the Dow, or whether the sector will stagnate and fall. We will begin to see the effects of downsizing and regrouping and whether it is helping. While Wal-Mart’s store closures have yet to happen, let alone have a meaningful effect on its earnings and balance sheet, Target’s exit from Canada is already completed and its pharmacy handover to CVS is done.
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