Target’s earnings and revenue beat Wall Street’s forecasts in the latest sign that shoppers are flocking to discount chains as inflation has left prices stubbornly high.
The “cheap chic” retailer raised its full-year profit forecast on Wednesday and reported its first increase in quarterly comparable sales in over a year, driven by price cuts that attracted more shoppers to its stores.
Shares of the Minneapolis-based retailer rose 11% in pre-market trading, after the chain said it expects 2024 profit in the range of $9.00 to $9.70 per share, up from its prior range of $8.60 to $9.60.
Target’s impressive numbers were reported a week after another low-cost retailer, Walmart, said its second quarter comparable sales rose 4.2%, an unexpectedly strong figure.
This summer, Target reduced prices on over 5,000 popular items, including bread, soda, paper towels, and pet food.
In February, it introduced a new private-label basics line called dealworthy, with most of the 400 items priced under $10.
Additionally, it expanded its Good & Gather and Favorite Day brands by adding 125 new food products.
Target CEO Brian Cornell said shoppers responded to this “newness” and the price cuts.
“Consumers have shown remarkable resilience in the face of multiple challenges over the last several years, and they remain resilient today,” Cornell told investors on an earnings call on Wednesday.
While Target and Walmart have benefited from customers’ preference for low-cost goods, Home Depot and Lowe’s girded for declines in profit as homeowners put off renovations and remodeling.
Costco, the wholesale retailer, has seen comparable sales rise in each of the past three months — reaching a growth rate of 5.2% in July.
Target recovered somewhat in the second quarter from a lengthy slump as consumers pared back discretionary spending in favor of food and rent.
The Minneapolis-based company reported four consecutive declines in comparable sales over the previous four quarters ending in May.
Prior to Tuesday’s close, Target shares have risen just 1% while Walmart’s stock is up 42% for the year.
In the most recent quarter, Target reported that sales of more discretionary goods such as apparel and beauty were improving.
Apparel sales were also a bright point, rising 3%, reversing several quarters of sales declines, led by private-label All In Motion and Wild Fable lines.
The US Commerce Department reported last week that retail sales rose 1% from June to July — the largest increase since January 2023.
The stronger than anticipated retail numbers temporarily eased worries that the economy might be weakening under the weight of soaring inflation and high interest rates.
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