Joe Feldman, Tesley Group assistant director of research, joins 'The Exchange' to discuss Target's recent stock moves, what would be most supportive for the stock and much more.

Donald Trump has signed an order to impose tariffs imports into the U.S. from countries including China, Mexico and Canada.

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Joe Feldman, Assistant Director of Research at Tesley Group, addressed recent changes in Target's executive team and the company's ongoing operational challenges. Feldman noted that while Target has made improvements in merchandising and e-commerce, further enhancements in store execution are needed to remain competitive.

Feldman also highlighted the impact of tariffs on inventory costs, stating that retailers, including Target, are facing increased expenses as holiday inventory arrives at higher tariff rates. He indicated that these cost pressures are likely to result in retail price increases, either in the near term or in the following year, as retailers decide how much of the tariff burden to pass on to consumers.

Tesley Group: Retail price increases are coming due to tariffs

Let's bring in Joe Feldman, Assistant Director of Research at the Telsey Group. Thank you very much for being here, Joe. Are you surprised by the magnitude of the stock reaction today? How much do you attribute it to the C-suite change versus just some of the fundamentals we saw coming out of the company? Yeah, our sense is that it was more related to the C-suite change. Speaking with investors over the past several months, you know, that's been one of the favorite topics is target CEO change would come at some point. When it does, who would be the next CEO? And I think there was some concern among the investor community that maybe they would just stay internal and promote from within, which they did with Michael Fidelke. I think they need to give Michael his fair chance to actually make some efforts to change. But I understand the impetus to believe that, look, he's been there for the past 20 years. He's been part of the C-suite team. And the strategy has been made under him. And he's been there to implement it. And it hasn't gone that well in the past couple of years. So one would think that it's just more of the same. I think time will tell. But what we heard this morning on the call was there's definitely some change that they're working on. And they're going to try to make that happen to try to improve the business. Among kind of the discussion on the call, what do you think would be most supportive for the stock if they can execute it right? I really think execution in the stores has to be better. Target's always had a history of when you go in, sometimes there would be some out of stocks. But things have gotten a little bit worse. The stores are a little less tidy, let's say. And I think that they could do some things just by tightening up their procedures and operations within the stores to make them look a little bit better, have better in-stock positions, to speed people through checkout a little bit faster, to have a little bit more support on the floor in terms of labor to engage with associates. I think all of that would make a big difference, just intermediate effect. Yeah, there are enough challenges on the macro front. Having idiosyncratic challenges is enough as well. It seems like kind of given the stock price reaction, given some of those operational kind of changes that are needed, this could be ripe for some sort of activist or buyout situation. What's your take on the possibility of something like that? Yeah, look, we've seen it before with Target, where years ago, Bill Ackman tried to do something on the real estate side to separate out the real estate that they own versus the stores and really did agitate. And while at the time it didn't work as well for him, over time it ultimately did. They did tighten things up. They improved the merchandising. They improved the operations. They got a much better e-commerce system. So I think that all of that has helped. They just now need to take it to the next level and execute much better. It's very competitive with the likes of Walmart, and you've got Amazon and Costco and everybody else. But to your point, yeah, an activist could come in. The stock's as cheap as it's been in a long time from a valuation perspective. So there definitely could be some agitation that could come if somebody did want to do that. Yeah. And as the lower third says, well, activists target Target. It always lends itself well to the puns there. Some of the macro challenges as well, given just supply chains, inventory levels, the state of the consumer, how is all of that faring as it pertains to Target? You know, their overall inventory level is actually not that bad. They were up a little bit. Units were down. But they've been focused on enhancing and making sure they're in stock on replenishable products, which is a good thing. They did take some one-time issues related to tariffs. They did cancel orders. There were some costs related to that this quarter. And some other inventory got inflated a little bit because of the tariffs. I still think there's more to come for really not just Target, but for all of retail. We think as a lot of the holiday inventory flows in, it's going to be at the higher tariffs. And that's going to start to flow through. It's going to show up in the inventory on the cost side a little bit. We'll see how much gets passed on to the consumer. We're debating internally, are retailers going to pass on a lot of the tariff to consumers directly in the fourth quarter, or do they hang on, eat some of it, and then maybe pass it on in 2026? But either way, we do hear price increases are coming from the retailers.

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Tesley Group: Retail price increases are coming due to tariffs

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