A New Target CEO – Just What the Doctor Ordered?

by Will Ashworth | May 5, 2014 2:12 pm

A New Target CEO – Just What the Doctor Ordered?

It’s officially being called a resignation[1]. However, we all know Gregg Steinhafel was shown the door after six years as Target (TGT[2]) CEO and more than 34 years at the company. Although Steinhafel is a lifer it’s clear the Target CEO badly mishandled its data breach forcing the board’s hand.

Target A New Target CEO   Just What the Doctor Ordered?[3]But is a new chief just what the doctor ordered for TGT stock? I’ll take a quick look.

Target CEO Capabilities

First, since the position is open, it’s worth considering what skills would be useful for a new Target CEO.

I’m pretty sure the new hire won’t be Ron Johnson, who spent 15 years at TGT and another 11 at Apple (AAPL[4]), before failing miserably at JCPenney (JCP[5]). With part of the problem being lax internal measures, the board likely will look to a retail veteran with strong IT influences. Someone who can take the Minneapolis retailer to the next level without compromising its customers’ data.

In addition, he or she should be very familiar with Canada’s retail environment. Since Target announced it was opening stores north of the border, I’ve been very enthusiastic about its chances. Unfortunately, the former Target CEO and his minions seemed blissfully ignorant to the task before them costing the company almost $1 billion in its first year of operations.

Although Target did almost everything wrong in its first year open, my recent visits to several Toronto-area stores seems to show progress is being made when it comes to solving some of the more obvious problems such as barren shelves. On the days I was there, the shelves seemed quite full.

The new Target CEO will need to keep a close eye on its Canadian operations, because that — not the data breach — is the driver of TGT stock.

And in addition to IT and Canada, the next Target CEO needs to have big volume experience on both sides of the border.

Target CEO Possibilities

Given the prerequisites I’ve specified above, the field isn’t nearly as wide as one might think. My two favorites:

Next Page[9]

Target CEO and TGT Stock

Since Gregg Steinhafel became Target CEO in May 2008, TGT stock has achieved a cumulative total return of 32% through May 2 — 23 percentage points less than the SPDR S&P 500 ETF (SPY[10]). Over the past five years, TGT stock also has underperformed its discount store peers[11] by 3.35 percentage points, though it’s even when compared to Walmart … which isn’t saying much.

Meanwhile, since Murphy has been at the helm of Gap, GPS stock’s total return is 135% compared to 44% for the SPY.

Whomever takes over at Target will have to do a serious sales job with investors. Since it publicly acknowledged the data breach Dec. 19, TGT stock has basically flat-lined, which actually isn’t half bad given this news story combined with the dreadfully poor results in Canada. In fact, the problem isn’t that TGT stock has declined precipitously, but rather that it’s dead money until these two situations appear in the rear-view mirror.

Thus, the new Target CEO will have to demonstrate to investors that the worst is behind it.

Again, while the data breach must be dealt with, the No. 1 issue facing the new Target CEO is getting Canada on a positive trajectory. All indications suggest that’s already underway, but it’s going to take several quarters of demonstrable success north of the 49th parallel before investors are willing to forgive TGT.

Bottom Line

While I don’t think anyone at Target HQ left their offices Friday expecting Gregg Steinhafel’s resignation to happen, I don’t think it comes as much of a surprise, either. Things haven’t gone well (or poorly for that matter — just mediocre) for TGT stock in recent years, and it became too difficult[12] for the board to ignore any longer.

Like in professional sports, when a team isn’t playing its best and a change is needed, the coach is usually the one to go; not the players. At 58, if Steinhafel wants another job, he likely won’t have to wait very long.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Endnotes:
  1. resignation: http://www.sec.gov/Archives/edgar/data/27419/000110465914034312/a14-11908_1ex99.htm
  2. TGT: http://studio-5.financialcontent.com/investplace/quote?Symbol=TGT
  3. [Image]: http://investorplace.com/wp-content/uploads/2011/07/Target.png
  4. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  5. JCP: http://studio-5.financialcontent.com/investplace/quote?Symbol=JCP
  6. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  7. GPS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GPS
  8. LBLCF: http://studio-5.financialcontent.com/investplace/quote?Symbol=LBLCF
  9. Next Page: http://investorplace.com/2014/05/target-ceo-tgt-stock-gregg-steinhafel/2/
  10. SPY: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPY
  11. underperformed its discount store peers: http://performance.morningstar.com/stock/performance-return.action?t=TGT&region=usa&culture=en-US&ownerCountry=USA
  12. too difficult: http://blogs.mprnews.org/newscut/2014/05/did-a-little-honesty-cost-target-ceo-his-job/

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