Target raised its full-year profit forecast on Wednesday and reported its first increase in quarterly comparable sales in over a year.
Price cuts increased sales and attracted more shoppers to the chain's stores.
Shares of the American retailer rose 16% touching a near four-month high of $167.40.
The stock was set for its best day in over nine months after the chain said it expects 2024 profit in the range of $9.00 to $9.70 per share, up from its prior forecast of $8.60 to $9.60.
Second-quarter comparable sales, or sales from online and stores open at least 12 months rose 2% in the quarter ending 3 August – the first rise in over a year.
Analysts on average estimated a 1.15% rise in comparable sales according to data from the London Stock Exchange Group (LSEG).
‘Picky About Where They Spend’
Traffic drove all its gains in comparable sales as price cuts on thousands of items proved to be a powerful lure for shoppers who have been dealing with a rapid rise in grocery prices and interest rates, the company said.
Analysts and industry watchers said the retailer’s results show that while US consumers are constrained, they are not in recession mode.
However, it also indicated that they are willing to hold out for whoever offers the best discounts and are increasingly being driven by banner events and occasions.
Chief economist at Annex Wealth Management Brian Jacobsen said, “The consumer is feeling nervous and pinched, and that will weigh on overall spending, but consumers still have plenty of purchasing power.
“They’re just being picky about where they spend.”
Prices
Rising prices in food and other immediate essentials since the pandemic have led to Americans prioritising grocery spend while cutting back on items such as clothing, electronics and home goods, all of which are key categories for Target.
To reverse more than a year of sales declines, Target reduced prices on over 5,000 popular items, including bread, soda, paper towels and pet food this summer.
Brian Cornell, Target’s chief executive officer said “newness,” price cuts and sales events were key factors that drove a 3% rise in visits to its nearly 2,000 stores.
This was a turnround from the 1.9% traffic decline in the previous quarter.
Target retained its full-year comparable sales forecast of flat to a 2% rise, but cautioned that the growth will be skewed to the lower half of the range.
Analysts polled by LSEG said they were expecting a 0.36% rise.
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