Key Points
Target delivered further declines in revenue and profits, but beat low Q2 expectations.
CEO Brian Cornell is stepping down and will be replaced by COO Michael Fiddelke.
Investors appeared to be disappointed by the appointment.
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Shares of retail giant Target (NYSE: TGT) are falling on Wednesday, down 8.1% as of 10:30 a.m. ET.
Target reported second-quarter earnings this morning that actually came in ahead of expectations. However, the retailer continued to show revenue and profit declines.
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Perhaps of larger importance, CEO Brian Cornell announced his retirement, and the company is promoting Chief Operating Officer Michael Fiddelke to the CEO role. Investors apparently didn’t love the news, perhaps anticipating it will lead to more of the same direction for the struggling retailer.
Can Target stop share losses?
In the second quarter, Target’s revenue fell 0.9% to $25.2 billion, while earnings per share declined a more severe 20.2% to $2.05 as tariffs hit margins. While revenue declines and margin compression certainly weren’t ideal, those figures actually came in ahead of expectations. Same-store sales actually improved from a 3.8% decline in the first quarter to a 1.9% decline in Q2, fueled by 4.3% growth in digital sales.
Given the improving trends, it might have seemed odd the stock was down so much. This could be because Cornell is well regarded in the business, or because investors would have preferred an outside appointment. Amid the rapid post-pandemic inflation, Target has lost some share to lower-cost Walmart (NYSE: WMT) and Costco (NASDAQ: COST), so some investors may have wanted an outsider with a fresh vision.
Image source: Getty Images.
Target’s stock is getting interesting
Shares are trading at just 10.5 times trailing earnings with a 4.3% dividend yield. Management is forecasting a slight earnings decline this year, to between $7 and $9, but even the $8 midpoint would put shares at just around 12 times this year’s adjusted earnings.
That’s a very low valuation, especially in today’s relatively expensive market. Therefore, value investors may wish to dig into Target’s current turnaround efforts and Fiddelke’s background.
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Billy Duberstein and/or his clients have positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.
