Target (NYSE:TGT), Best Buy (NYSE:BBY), and AutoZone (NYSE:AZO) reported earnings yesterday. Confirming that the spending slowdown has legs, with declining sales and earnings for the quarter. And forward guidance that disappointed.
But lets not rush to judgement. These particular retailers have had issues dating back for years. Target has seen sales decline in 4 out of the last 8 quarters, with an average sales decline of -1.2% over the last 8 quarters. While Best Buy has seen sales decline for 13 straight quarters now.
While forward guidance may have been disappointing, assuming any of these retailers achieve their forecasted growth rates, it would still be their best year in at least 3 years for each of them.
Here are the details:
Target reported quarterly sales and earnings that were above expectations, but sales still declined 3% and earnings fell 19%. The biggest earnings decline in 2 years.
Best Buy results also came in better than expected, but sales and earnings still fell 5% for the quarter.
AutoZone results came in below expectations, with earnings declining 2% and sales growing 2%.
They all mentioned how trade policy uncertainty, inflation, and the resulting drop in consumer sentiment is expected to negatively impact business going forward. With the expectation of having to raise prices to offset the rising costs.
Looking ahead at expectations for the next 4 quarters:
- Target (1% sales growth, on 5.2% EPS growth) = 12.6x forward PE
- Best Buy (0.5% sales growth on 3.6% EPS growth) = 13.0x forward PE
- AutoZone (5.2% sales growth on 11% EPS growth) = 21.2x forward PE
Target and Best Buy are growing at less than half the market average, but are trading at a 40% discount to the market as well. At some point, I assume there will be a good value here. But I couldn’t begin to time that.
AutoZone is my clear favorite of the group, along with O’Reilly auto. It’s growth rate and PE is around the same as the market average. They won’t go parabolic like an Nvidia (NASDAQ:NVDA) but they have been some of the most consistent “slow and steady” stocks you can find. Trade policy uncertainty could very well be a drag in the short term. I’d love to see a pullback to the 50 week average.
As I’ve said many times before, tariffs are a tax on us. US companies are the ones that pay the tariffs (which is why they are rushing to import their stuff now!), and I think its safe to assume those costs will eventually be passed down since many of these retailers have already suggested that its coming.