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Target CEO (Carefully) Talks About Tariffs and Price Hikes

By Daniel B. Kline – Aug 24, 2018 at 6:12AM

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He addressed the effects of the trade war, but was very careful not to turn a conference call into a political rant.

Many CEOs have been very careful when it comes to making political statements. That's because, in the current highly charged environment, any perception of leaning right or left could chase away customers.

That creates a minefield when a company has concerns over any policy enacted by the Donald Trump administration. Harley-Davidson, for example, wound up on the bad side of the president's tweets when it said it would move some production overseas to avoid tariffs being enacted by countries in response to U.S. trade policy.

That's a fate most CEOs would like to avoid. So you can imagine how carefully Target (TGT -0.38%) CEO Brian Cornell addressed tariffs during his company's second-quarter earnings call, which was transcribed by Seeking Alpha (registration required).

A crowded Target store.

Target's CEO is concerned that tariffs will cause price increases. Image source: Target.

What did Target's CEO say?

Target has had its share of controversies over political issues. Last year, for example, it faced a boycott over its policy allowing transgender shoppers to use the bathroom of their choice. The company did not back down, and eventually the backlash mostly faded.

Cornell clearly learned from that experience. While he was very direct in addressing how he believes tariffs will impact customers, he walked a tightrope, making his comments as apolitical as possible:

"As a guest-focused retailer, we're concerned about tariffs because they would increase prices on everyday products for American families. In addition, a prolonged deterioration [in] global trade relationships could damage economic growth and vitality in the United States."

That's a very measured way to warn investors (and, indirectly, customers) that tariffs and the escalating trade war could lead to higher prices. Cornell also addressed how Target has been handling the issue:

"Given these risks, we have been expressing our concerns to our leaders in Washington, both on our own and along with other retailers and trade association partners. However, our concern is centered on the impact of tariffs, on consumers and the economy, not our ability to manage our business in the [face] of these challenges."

Expect the best, plan for the worst

Cornell's comments were an effort to warn, but also to reassure. He was pointing out a reality: The ongoing trade issues will force higher prices on some consumer essentials. At the same time, he also made it clear that he was on top of the issue and that Target was prepared to deal with it:

"As you know, when we're faced with tariffs or any other external factors, there are multiple levers we can pull to remain price-competitive and maintain profitability, and we are continually developing and implementing contingency plans as we learn more and things evolve. While we always account for risks like these when we plan for the future, today we are also focused on the multiple opportunities we see in front of us."

That's a long way of saying, "We see what's coming, but don't worry, we got this." It was a deft effort by Target's CEO to point out a business risk and explain (albeit vaguely) how it would be handled -- doing it all without taking a political stance.

It might not create as big a headline as if Cornell had given a fiery speech about how much money tariffs are going to cost American consumers. But for Target, that's the right play in this situation. It shows that the company's CEO has learned how to operate in the current political environment -- and that's good for shareholders.

Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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