By Siddharth Cavale and Juveria Tabassum (Reuters) -Target named insider Michael Fiddelke on Wednesday as its new CEO to succeed long-time top boss Brian Cornell, and beat quarterly estimates, helped
Target Appoints Insider Michael Fiddelke as New CEO Amid Stock Drop
By Siddharth Cavale and Juveria Tabassum
(Reuters) -Target's choice to name insider Michael Fiddelke as its new CEO in an effort to turn around the struggling retailer was met with a negative reaction from the stock market, as investors viewed the 20-year company veteran as unlikely to fix the company's myriad issues.
Fiddelke, 49, won't start until February of next year, when he replaces current CEO Brian Cornell. In his first media call as incoming CEO, Fiddelke said his "number one goal is to get us back to growth."
But investors see that as a tall order. Shares dropped more than 10% in premarket trading, as analysts said the company could have looked outside for new leadership after years of sales struggles, merchandise missteps, and inventory management.
In its most recent quarter, same-store sales fell less than expected, but the company's operating margin dipped, and it said it will face ongoing challenges due to tariffs.
"We have very mixed feelings about this appointment," said Neil Saunders, managing director at GlobalData. "This is an internal appointment that does not necessarily remedy the problems of entrenched groupthink and the inward-looking mindset that have plagued Target for years."
The company's struggles have manifested in a consistently weak share performance. The stock is down 23% over the last five years, a period of time where Walmart has risen 125% and Costco has more than tripled.
Saunders also said he was surprised that Cornell will move into the role of executive chairman, calling it "a reward for failure."
"In our view, the boardroom needed a clear-out," Saunders said.
Over the past year, Target has faced challenges in maintaining steady sales growth, and its pullback on diversity, equity and inclusion policies in January angered some loyal customers who long praised the company's commitment to inclusiveness.
Fiddelke, currently the chief operating officer, said his three priorities are to improve the quality of merchandise, value and style that Target offers, ensure a more consistent shopper experience, and embed more technology in all parts of its business.
"We need to move faster, much faster," he said.
Second-quarter comparable store sales fell 1.9%, smaller than expectations for a 3% decline. Its operating income margin fell to 5.2% from 6.4% in the same quarter last year. The decline was driven by deeper markdowns, costs from canceled purchase orders and weaker demand for discretionary items, which make up a large portion of its product mix.
"Given the many challenges TGT has faced over the last several years, it's not surprising that investors were leaning towards an external hire," said Steven Shemesh, analyst at RBC Capital Markets.
"In either case, however, TGT faces a steep uphill battle to bridge the gap with competitors in an increasingly digital world," Shemesh said.
Those challenges are being complicated by tariffs, which Cornell said will pressure the company's profit-and-loss, even as it reiterated that price increases would be considered only as a last resort.
"We were facing some major financial and operational hurdles as we entered the year. This was further complicated by the multiple changes in tariffs policy," Cornell told investors.
The company also held on to its annual forecasts after lowering them in May, when it blamed weak demand for the largely discretionary merchandise it sells like apparel and electronics.
Cornell, who has led Target for 11 years, noted progress in diversifying the company's sourcing strategy. This includes reducing reliance on store-brand products from China and leveraging Target's scale to navigate the tariff landscape more effectively.
DEEPER DISCOUNTS
The retailer has taken steps to turn itself around, including intensifying efforts to entice customers worried about the economy. These efforts have included offering 10,000 new items starting at $1, with most priced under $20, and launching several affordable private-label lines.
Still, consumers remain selective and are motivated by promotions as inflation continues to strain household budgets, Target executives noted on the call.
Target said deeper discounts helped bring more shoppers into stores and boosted how much they spent. Store traffic improved from a 2.4% drop in the first quarter to a smaller 1.3% decline in the second. The average amount spent per visit also improved, falling just 0.6% compared to a 1.4% drop in the previous quarter.
Target reported second-quarter net sales of $25.21 billion, beating estimates of $24.93 billion, according to data compiled by LSEG. Excluding items, the company reported earnings per share of $2.05, which topped Wall Street estimates by 2 cents.
(Reporting by Juveria Tabassum in Bengaluru; Editing by Muralikumar Anantharaman, Saumyadeb Chakrabarty and Mark Porter)
