Target's Q2 comparable sales slightly declined, officially announcing a CEO change, with stock price plummeting over 10% in pre-market trading | Earnings Report Insights

The second-quarter results released by American retail giant Target on Wednesday exceeded Wall Street expectations, but the ongoing challenges of declining comparable sales and foot traffic remain unresolved.

Target's net sales for the second quarter reached $25.21 billion, surpassing the market estimate of $24.93 billion, with adjusted earnings per share of $2.05, higher than the expected $2.01. Nevertheless, the company's comparable sales fell 1.9% year-over-year, and customer transactions decreased by 1.3%.

The company also announced that current Chief Operating Officer Michael Fiddelke will take over as CEO in February next year.

Affected by the performance results and the CEO transition news, Target's stock price plummeted over 10% in pre-market trading, highlighting investors' concerns about the Minneapolis retailer's ability to return to a growth trajectory. The company's stock price has cumulatively dropped about 60% from its historical high at the end of 2021.

Facing Multiple Challenges, Target Maintains Full-Year Profit Guidance

Despite sales exceeding market expectations, Target's profit margins remain under pressure, with net profit for the second quarter falling from $1.19 billion in the same period last year to $935 million.

Increased discount promotion rates, rising costs from canceled purchase orders, and consumers purchasing more lower-margin hardline products such as electronics and toys all pose challenges to profitability.

Target maintains its full-year adjusted earnings per share expectation of $7 to $9, a forecast that was already downgraded in May this year. The company expects a low single-digit percentage decline in full-year sales.

Target's transformation efforts face additional challenges. Last week, the company announced the termination of its partnership with Ulta Beauty, with the mini beauty stores opened in nearly one-third of Target locations set to close by August 2026. This partnership was seen as a significant driver of foot traffic and growth in the beauty category.

Data from analytics firm Placer.ai shows that foot traffic at Target stores has been declining almost weekly since the end of January this year. Customers and former employees told CNBC that Target has lost some of the unique advantages that once set it apart in the competition, such as eye-catching merchandise, tidy store environments, and attentive customer service.

Facing a situation where about half of its products rely on imports, higher tariff threats further exacerbate the challenges the company faces.

New CEO to Implement Three Major Revitalization Strategies

Despite overall weak sales, some segments of Target's business still show growth momentum: online sales increased by 4.3% year-over-year during the reporting period, while non-merchandise sales surged by 14.2% due to growth in advertising business Roundel, membership programs, and third-party marketplace revenue.

Incoming CEO Michael Fiddelke, who has served as CFO and COO during his 20-year career at Target, stated in a conference call with the media that he will focus on three key priorities: reshaping Target's reputation as a unique fashion retailer, providing a more consistent customer experience, and leveraging technology more effectively to enhance operational efficiency Fiddelke admitted that the company has lost its leading position in traditional advantageous categories such as home goods.

He stated, "We have been too focused on 'core' products and have made progress in fashion and design leadership, which are crucial in this category." However, he pointed out that the company has made progress by incorporating Disney and Marvel-themed bedding into its children's home brand Pillowfort