For many discount retailers customer loyalty lasts about as long as the price is right -- then it's gone. This presents a challenge for leadership in terms of attracting customers without eroding margin. Same-store sales is a commonly used measure of year-over-year growth and the metric is trending down for some large retailers like Target (NYSE: TGT ) and Wal-Mart (NYSE: WMT ) , but Wal-Mart has a stated plan of action, whereas Target is still recovering from the data breach.
Nobody thought Tuesday Morning (NASDAQ: TUES ) , a small-box retail rival to both Target and Wal-Mart, was going to make a comeback from the depths of earnings purgatory last year, but it did. The reason for the turnaround is new leadership.
Last year Tuesday Morning's board of directors appointed a new CEO, and he turned the company from negative to positive earnings in less than a year. This is the power of good management. Indeed, as you can see from the chart below, the market began to value the appointment long before the good news of positive earnings even arrived.
This time last year Wal-Mart was dealing with its own set of issues. The U.S. Department of Justice charged the company with several cases of international bribery and these charges consumed Wal-Mart's executive resources. Wal-Mart eventually plead guilty to the charges and a few months later announced that Doug McMillon would be taking over. Doug McMillon actually started his career at Wal-Mart as an hourly employee in the distribution center, but in February he started his new role as CEO. On the last earnings call he laid out an impressive plan of attack to get same-store sales growth up again.
Target is dealing with data breach lawsuits much like Wal-Mart was dealing with bribery charges this time last year. Prior to the breach, Target acknowledged its issues, particularly with declining same-store sales, but offered no real change in course to offset the trend. Still, we're talking about a company with solid EPS, great real estate, a well established brand that connotes higher-end discount, and a 46-year track record for dividend payments. The value is there, but needs a new leader to bring it out.
One of the most important determinants of long-term value is good leadership and there's strong evidence that with new leadership Target has the ability to put this data breach behind them. The company's price may be down now, but the underlying value is still there. What's more, the market may reward a change in leadership even prior to seeing the proof -- it certainly did for Tuesday Morning.
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