Target CEO Under Pressure as Boycott, Tariffs Hit Sales

Yahoo

21-05-2025

(Bloomberg) -- Pressure is growing on Target Corp.'s chief executive officer after the retailer cut its sales forecast following a sharp pullback in consumer spending and a hit from tariffs and boycotts.
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The report sent shares falling and raised questions over Brian Cornell's ability to recapture growth after two years of choppy results — especially as economic turbulence is growing.
'It's a great brand. It's actually a great company. It just looks to us like it needs a new leadership,' said Bill Smead, chief investment officer of Smead Capital Management, which has owned the stock since 2017.
Target's current management has struggled to navigate through cultural and political landscapes, Smead said, referring to the backlash around its Pride collection in 2023 and boycott calls after the company decided to halt diversity initiatives this year.
It hurts the business to alienate customers, Smead said. He thinks that Target needs to focus more on its strengths and execution during economically challenging times instead of getting caught up in social issues.
In September 2022, Target said that Cornell would stay in his job for about three more years.
The company said Wednesday that it expects net sales to decline by a low single digit this year, down from previous guidance for an increase of about 1%. In the quarter ended May 3, comparable sales dropped 3.8%, more than analysts had expected, on fewer shoppers. Consumers also spent less per visit.
'I want to be clear that we're not satisfied with these results,' Cornell said during a call with reporters. 'We've got to drive traffic back into our stores and visits to our site.'
Target shares fell as much as 7.7% in New York trading. Through Tuesday, the company's stock was down about 27% compared with a 1% increase in the S&P 500.
'The question is how long are investors willing to wait for Target and how much confidence they have in management's strategy to turn around,' said Sheraz Mian, director of research at Zacks Investment Research.
Target hasn't been as nimble as competitors in responding to fluctuations in demand. Revenue has declined in five of the past eight quarters. Pressure is growing on Cornell and his team to establish growth strategies, Mian said.
Walmart Inc., Target's biggest rival, has been investing in low prices, sprucing up its assortment and remodeling stores. It's also gained market share among wealthier shoppers, who used to be Target's sweet spot.
Target executives acknowledged that they're not hitting the mark. Sales jumps during major holidays and limited-time design collaborations help fuel growth and bring people into stores, but the company isn't seeing that same kind of everyday momentum.
'We recognize that we've got to make sure each and every day, we deliver the right products, the right assortment, the right value that brings guests into our stores and our digital sites,' Cornell said.
While that trend has hit retailers broadly, Target has been more vulnerable than some of its peers. That's because apparel, home goods and non-consumable items make up about 65% of its sales, while competitors such as Walmart rely on groceries for a larger percentage of revenue. Target has also had trouble with inventory management in recent years amid fluctuations in demand.
'We think it will be more difficult for Target in this environment given tariffs and Walmart's substantial market-share gains,' said Jefferies analyst Corey Tarlowe.
Target announced a series of management changes on Wednesday that it said will improve performance. Chief Strategy and Growth Officer Christina Hennington, a Target veteran of more than 20 years and once seen as a potential successor to Cornell, will leave the company.
Chief Operating Officer Michael Fiddelke will lead a newly formed group called the 'multiyear acceleration office,' aimed at positioning Target to move faster on growth priorities. The company will also double down on offering trendy, affordable products and convenient shopping experiences, executives said on a call with analysts.
The Minneapolis-based company did well during the pandemic but has struggled since then as consumers spend less on clothes, home goods and other non-necessities following years of rising inflation. The worse the economic turbulence gets, the more pressure it puts on Cornell, who was once seen as a retail wunderkind after stints leading large divisions at companies such as Walmart and PepsiCo Inc.
Cornell joined as the top executive of Target over a decade ago and streamlined the retailer's operations. He led the company through the pandemic and beefed up digital operations, but Target hasn't been able to generate substantive growth since then.
While Target is one of many companies that have dialed back diversity programs following pressure from the Trump administration, it's experienced a bigger backlash than others because it had previously taken a strong public stance in favor of diversity and inclusion.
Tariffs represent the latest obstacle. Higher levies on imported goods are expected to raise prices of goods in the near term, resulting in a decline in consumer sentiment and cautious shoppers. Executives signaled that challenges are expected to persist in the coming months.
The company is adjusting prices in response to the volatile environment, executives said, without directly linking changes to tariffs — a departure from the company's more direct comments about the levies' effect in March.
The retailer is moving to reduce its exposure to China. It's on track to source about 25% of its store brands from China by the end of next year, down from 60% in 2017. Target is also negotiating with suppliers on prices.
Home Depot Inc. on Tuesday also struck a more conservative tone about tariffs after Walmart last week said that price increases are coming. Those remarks drew the ire of Trump over the weekend.
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