Target reported better than Wall Street expectations, but the stock fell. What are investors unhappy about?

US retail chain Target beat Wall Street's expectations for second-quarter earnings and revenue, but that failed to overshadow investor concerns about the company's future. The retailer, which has struggled with sales for 11 consecutive quarters, named its chief operating officer, who has been with Target for 20 years, as its new head. Investors, however, were counting on an outside candidate who could bring fresh ideas to the table. Some analysts doubted that the insider would be able to reverse the negative trends, while others, on the contrary, consider him a good choice just because of such a rich experience of working inside the company.

Target reported revenues of $25.2 billion for the second quarter: sales were down 0.9% year-on-year, but beat Wall Street expectations. Analysts had expected $24.9 billion, Reuters reports, citing LSEG data. Adjusted earnings per share came in at $2.05, beating analysts' expectations by 2 cents. Comparable sales (counted by points operating for at least 13 months to exclude the effect of network expansion) also turned out to be better than forecasts: they fell only by 1.9%, while Wall Street predicted a drop of 3%, notes The Wall Street Journal. Nevertheless, this is the 11th consecutive quarter in which this indicator has either fallen or remained at the same level, the newspaper notes.

Target's sales showed growth in all six key categories, from apparel and cosmetics to food, home goods and electronics. The biggest contributor was the electronics and gaming devices sector, where sales added 5% and achieved their best results since 2021, Reuters notes. Store visits also improved, with the decline narrowing to 1.3% from 2.4% in the first quarter. The average check fell only 0.6% - better than the quarter before (-1.4%). More aggressive discounting was a key factor in the improved performance, the company said. The company also maintained its full-year revenue and profit targets, but warned of higher prices amid duties.

In trading on August 20, shares of Target collapsed immediately by 10.6% - to $94.1. If the rate of decline continues to close, it could be the worst day for the securities since April 3, when Donald Trump's "Emancipation Day" collapsed quotes of the company at once by 10.9%, noted WSJ. Compared to the beginning of 2025, the company's market value is now nearly 30% lower. For comparison: the main U.S. stock index S&P 500 for the same period, on the contrary, added about 9%, and the securities of Walmart - a competitor of Target - rose by 12.5%.

Investors were disappointed by Target's announcement that longtime employee and current COO Michael Fiddelke will replace current CEO Brian Cornell, Barron's said . Fiddelke will take over effective Feb. 1 and will have a lot of work to do to restructure the business, Barron's noted. The retailer is facing its third consecutive fiscal year of declining revenue amid poor assortment, overpricing, understaffing and store clutter, the publication said.

Investors, on the other hand, expected Cornell to be replaced by someone from outside the company who could bring a fresh perspective to the company, not a veteran employee.

"While we don't know Mr. Fiddelke personally, his track record is impressive, with more than 20 years with the company. His outside perspective could bring significant change to the business," Mizuho analyst David Bellinger noted in Barron's outline. - However, as the stock's reaction showed, we and the investor community would prefer an outside candidate who can bring sweeping change to Target."

However, according to Target's lead independent board member Christine Leahy, the decision was the result of a thoughtful succession process that included an external search. "Michael's seniority gives him an unrivaled understanding of the company and the team's base of trust," Leahy said (quoted in Barron's). Fiddelke himself emphasized in comments to the publication that he, too, sees his experience as an advantage and has made it a primary goal to return the company to growth. Among his priorities, he cited updating the product line, improving the customer experience and implementing technology to increase efficiency.

"Target showed improvement in the second quarter," Bernstein analyst Zhihan Ma acknowledged in Barron's outline. Still, she wouldn't change her Underperform rating for the company's securities, the equivalent of a "sell" advice. She said Target is "still not out of the woods," with comparable sales remaining negative and major macroeconomic challenges ahead, including rising duties and weakening consumer demand. Ma emphasized that against this backdrop, the market would find it hard to believe in a turnaround led by a longtime insider who has worked to merge the offline and online sectors into a single system. However, the analyst said the company has to choose between growing sales and preserving margins, as underinvestment in automation and logistics is limiting the efficiency of this area.

Oppenheimer analyst Rupesh Parikh, on the contrary, believes that Fiddelke's years of experience at Target and his fit with the corporate culture make him a good choice for CEO, despite the market's expectations to see an outside candidate. Parikh advises investors to "buy" the company's stock (Outperform rating), Barron's clarifies.

In total, according to MarketWatch, 38 analysts follow the dynamics of Target securities. More than half of them (22) are neutral and advise investors to keep previously bought shares in the portfolio. Ten more recommend to buy (Buy and Overweight ratings), and the remaining six - to sell (Sell and Underweight). Wall Street's consensus target price for the company's shares is $102.4, which implies a decline of almost 3% from the closing price on August 19.

This article was AI-translated and verified by a human editor