Some good news came out of Target (NYSE:TGT) last night as the company announced it expects same-store sales for its five-week September sales period will be up close to 5%. This updated guidance is at the high end of the company's previous 3% to 5% estimate.
With gas prices falling dramatically (thank you!) the last few weeks and short-term signs of inflation cooling, the increase in same-store sales isn't entirely a surprise, but it is certainly welcome news. The questions over the next few weeks will be whether it is sustainable for Target, and if Costco (NASDAQ:COST), Wal-Mart (NYSE:WMT), BJsWholesale Club (NYSE:BJ), and the dollar stores will report similar trends.
The bear argument here is that this is only one month of sales data, and with the housing market still crumbling it's more likely than not that consumer spending will still be pinched. In the bear's eyes, the results are only a small hill on the road back down the mountain.
There's something to be said for both sides of the argument. Luckily, as investors we don't have to take sides in this argument. First, we can focus on the fact that one month of same-store sales data doesn't make a trend, and that same-store sales aren't the be-all, end-all of company analysis. Second, we can conservatively estimate the 10- or 20-year performance for a company and then discount those cash flows back to today. If the estimated value is well above today's share price or well below, then we can buy or sell and ride out the short-term volatility. That's the theory anyway, but practicing such a strategy on a daily basis isn't always as easy as the theory makes it sound.
Unfortunately, no matter which side of the fence you fall on right now, Target, Wal-Mart, Costco, and many other retailers are not tremendously over- or undervalued. I believe fairly solid arguments can be made that Wal-Mart and Costco will beat the market from current prices, but not necessarily by a wide margin. All of which means the anticipated results from Target are certainly a positive development to pay attention to, but they don't mean all that much in the long term to Target or any of the other companies in the retail space.
Costco is a Motley Fool Stock Advisor selection and Wal-Mart is a Motley Fool Inside Value selection.
At the time of publication Nathan Parmelee owned shares in Costco, but had no financial interest in any of the other companies mentioned. The Motley Fool has an ironclad disclosure policy.
