essays pieces of the puzzle
Saturday, November 17th, 2012
on target

Doug Scovanner, who retired as the CFO of Target (TGT) after eighteen years, was honored this week with a lifetime achievement award from a Twin Cities business publication.

The chart above starts just before the company changed its name from Dayton-Hudson, six years into Scovanner’s tenure.  The top panel shows that the return on the stock has beaten Wal-Mart (WMT) and the S&P 500 handily over that time, and the consumer cyclical ETF (XLY) to a lesser extent.

Target and Wal-Mart are often compared and you can see that during the middle of the last decade TGT stock did extremely well relative to WMT, but gave it back as consumers traded down during the financial crisis.  It’s interesting to note that after WMT’s monstrous early run, TGT stock has been just as good, slightly outperforming WMT since the start of the 1990s.

The lower two panels provide some fundamental information.  Like most firms, Target has been struggling to generate sales growth.  Its profit margins have not reached their previous highs.

Scovanner’s tenure encompassed a great many changes for the firm.  At one time, JCP tried to buy it, perhaps seeing the writing on the wall.  Then Bill Ackman (who ironically has suffered from his JCP investment this year) took Target on a few years ago, which didn’t end well for his investors.

Ackman has been very successful, but the contrast couldn’t be more stark between his values and Target’s approach to business.  In his acceptance remarks, Scovanner highlighted the full funding of the firm’s defined benefit plan and the commitment to reinvesting in the communities in which the firm does business.  It gives away five percent of its profits (around $4 million a week), a policy started by the Daytons, its founding family.

Proponents of “shareholder value” may scoff at such traditional values, but the results have shown that the bottom line for such an old-fashioned philosophy has been right on target.  (Chart:  Bloomberg terminal.)

a new issue

The latest Prudent Fiduciary Digest is out, full of great reads on key topics for investment decision makers.  The sign-up page also has brief descriptions of and links to all of the back issues.