TGT stock: 20% drop & disastrous quarter. What's going on?

Why was it not priced in? What does it tell us about consumer spending?

Target (TGT), one of America’s largest retailers, posted its largest earnings miss in almost 2 years last Wednesday. The stock dropped as much as 22% that day.

Every single data point was suggesting a “disastrous” quarter. Any investor who did due diligence and looked at the data everyone else was looking at should have expected this. Hence, the move should have been priced in, right? Yet, the stock dropped 20%+. How is that possible?

Meanwhile, one of TGT’s main competitors, Walmart (WMT), also announced its earnings and hit all-time highs after beating estimates and raising guidance on strong demand. What is going on? This divergence is telling us an important story about the core business models of retailers and consumer spending.

Let’s review Target’s earnings and dive into the two important questions above.

TGT earnings

Last Wednesday, Target (TGT) reported one of its largest quarterly earnings misses (refer to our previous post on retailers for context on some of the key terms below such as comps, traffic, ticket):