Target Corp (TGT) announced that it has “lowered its prices on thousands of items” in an effort to take back market share from Amazon.com Inc. (AMZN). Unfortunately, the market is not seeing this as a revenue enhancement move and has sold the stock for most of the day. Target’s announcement not only affected their stock price, but the stock prices of all of the top ten shorts in the Multi-line Retail Sector.
| Multi-Line Retail
Sector (in $ millions) |
Ticker | Short
Interest |
1 Week
Change S.I. |
YTD MTM
P/L |
9/8 Price
Change |
9/8 Day
P/L |
| Target Corp. | TGT | $3,282 | +$286 | +$479.6 | -$1.63 | +$91.6 |
| Kohl’s Corp | KSS | $1,479 | +$105 | +$179.3 | -$1.60 | +$55.8 |
| Dollar General Corp. | DG | $1,441 | +$121 | -$57.2 | -$1.11 | +$20.8 |
| Nordstrom Inc. | JWN | $1,225 | +$33 | -$9.9 | -$0.21 | +$5.6 |
| Macy’s Inc. | M | $849 | +$58 | +$207.4 | -$0.28 | +$11.0 |
| Big Lots Inc. | BIG | $690 | +$7 | +$46.6 | -$0.21 | +$3.0 |
| Burlington Stores | BURL | $545 | +$12 | -$31.5 | -$0.30 | +$1.9 |
| JC Penney Co. | JCP | $537 | +$13 | +$344.3 | -$0.09 | +$11.7 |
| Dollar Tree Inc. | DLTR | $520 | +$27 | -$38.3 | -$0.36 | +$1.2 |
| Dillard’s Inc. | DDS | $467 | -$35 | +$17.7 | -$2.25 | +$18.2 |
| Total Top Multi-Line | $11,035 | +$637 | +$1,138 | +$220.8 | ||
| Amazon.com Inc. | AMZN | $5,122 | +$106 | -$1,188 | -$8.11 | +$42.4 |
For the year, the most shorted Multi-Line Retail stocks were down 13.6% in aggregate, while their arch nemesis, Amazon.com, was up 29.3%. An Amazon vs. Retail competitors “pairs” trade on in the beginning of 2017 would have beaten both S&P 500 and Nasdaq returns handily. Going long $100 million of Amazon.com and shorting $100 million of the most shorted retailers in proportion to their short interest would have netted a 43.7% return – over four times the S&P 500’s return and more than doubling the Nasdaq’s return.
With Target risking their margins in order to keep market share, other retailers are bound to follow suit to protect their customer base. If the expected increase of gross revenues does not offset Target’s decline in margins, the retailer’s fourth quarter earnings may contain more red than its logo. And if the rest of the sector follows Target’s lead and doesn’t successfully create a beachhead against Amazon.com’s encroachment, the Amazon “pairs” trade” will be even more profitable for the rest of 2017.
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.net
Managing Director Predictive Analytics, S3 Partners
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