Target raises profit forecast after price cuts boost sales

FE Team | Published: August 21, 2024 22:52:18

Target 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, reports Reuters.
Shares of the Minneapolis-based retailer rose 13.8 per cent in premarket trading, 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 per cent in the quarter ended Aug. 3, the first rise in over a year. Analysts on average estimated a 1.15 per cent rise in comparable sales, according to LSEG.
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.
"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," said Brian Jacobsen, chief economist at Annex Wealth Management.
Rising prices of food and items made for immediate consumption since the pandemic have led Americans to prioritize spending on groceries and everyday essentials, while cutting back on purchases of apparel, electronics, and home goods, 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. In February, it introduced a new private-label basics line called deal worthy, 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 ran its Circle Week sales event in July, with an early focus on back-to-school products, which stimulated interest among shoppers, driving online sales up 8.7 per cent in the quarter.
Brian Cornell, Target's Chief Executive Officer said "newness," price cuts and sales events were key factors that drove a 3 per cent rise in visits to its nearly 2,000 stores. This was a turnaround from the 1.9 per cent traffic decline in the prior quarter.