Thursday, March 23, 2017

AFA's Continuing War With - UPDATED

English: Logo of Target, US-based retail chain
Anti-LGBT hate group, American Family Association, continues to try to convince people that their inane boycott of Target stores had a material effect on fourth quarter earnings. I originally wrote about this last Thursday when AFA challenged some fact checking by Since then they have sent out two emails on the subject. Tuesday evening they trotted the issue out again on their “news” blog with a post titled: “AFA fact-checks a fact checker.” reached about the same conclusion that I did on March 1. Simply stated, operations like are kicking the crap out of brick and mortar retailers. Furthermore, the decline in revenues was mostly attributable to the sale of their pharmacy division to CVS. The big negative was not revenues but profitability.

The hate group's leader, Tim Wildmon, has never really worked anywhere. His business acumen is on par with a geranium. Walker Wildmon, Tim's son, isn't terribly swift either. Without providing any facts, he concludes:
“All the facts lead to the conclusion that the boycott is having a certain impact,” says AFA spokesman Walker Wildmon. “Their stocks are down 35 percent over the past 12 months, and while other retailers might be down, Target's drop is more than other retailers such as Walmart or Costco.”
Facts? what facts? Any time someone refers to “stocks” (plural) you know that you are dealing with a rube. With respect to equities the plural of stock is, well, stock. The price of Target shares (that's the plural form) is based upon earnings, past and anticipated. Costco is not in the same sector. However Target shares are priced at 13.15 times 2020 estimates. Walmart shares are priced at a comparable 13.75 times 2020 estimates.

Target is a $70 billion dollar company. Just doing the math, it's unlikely that AFA's boycott would affect revenues. Based on average retail loyalty fewer than 5% of the signers of AFA's boycott pledge are likely to be Target customers (and that is extremely generous) and a certain percentage of those are going to buy something from target if the price is right. What do those people actually spend each year at Target? Assuming 4% of the 1.2 million (allowing for people who don't honor the pledge), that amounts to 48,000 consumers. To have a material effect (say $.5 billion in revenues) they would have to be spending an average of $10,400/year and that's just not remotely realistic.

But there is a far more credible rationale. All of Target's executives have stock options. Were Target's policy an impediment to the value of those options, the policy would be changed faster than you can say LGBT. That is a virtual certainty.

UPDATE: Since posting this piece some additional facts have come to my attention which seem to add verification to The Amazon Effect.

Payless, the shoe store chain is expected to file for bankruptcy next week. Worse yet, it looks like Sears will follow suit at some point this year. Management is questioning whether they are still a “going concern” (an operation not operated with the potential for liquidation). JC Penney, Macy's KMart and other retailers have announced that they are closing stores. Overall about 3,500 stores are expected to close in the first half of 2017.

Off topic, weighing in on the economy:

Personally, I think that we are in deep shit. Credit card delinquencies are at 2.34% — the highest in three years. Lease delinquencies reported by commercial banks are the highest in over four years. People are paying their mortgages which makes sense because of all the write-offs over the last few years and banks tightening requirements including the elimination of “no-doc” mortgages. However farmland loans are at the highest default rate in three years. Commercial and industrial loans (“C&I”) are at their highest delinquency rate in five years.

It gets even worse when you look at charge-offs. Credit card charge-offs for example are at a whopping 3.56%, the highest they have been since the first quarter of 2013. I hope that I am wrong but I think that the turds are going to hit the turbines. On the other hand, Amazon shares are selling at a 175 PE ratio which means that institutional investors have far more confidence in the economy than I do and they are the professionals.

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