Target raises 2024 profit forecast after price cuts boost quarterly sales
Target's Q2 comparable sales up 2%, beat LSEG estimates of 1.15%
Raises 2024 profit forecast to $9.00-$9.70/shr from $8.60-$9.60
CEO says shoppers responding to newness and the price cuts
Shares up nearly 14% in premarket trade
Adds analyst comments in paragraph 6, 16, details on online sales in paragraph 7, updates shares in bullets and paragraph 2
By Siddharth Cavale and Ananya Mariam Rajesh
Aug 21 (Reuters) - Target TGT.N 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 ofthe Minneapolis-based retailer rose 13.8% 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% in the quarter ended Aug. 3, the firstrise in over a year. Analysts on average estimated a 1.15% 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.
Analystsand industry watchers said the retailer's results show that while U.S. 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 aboutwhere 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 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 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% in the quarter.
Brian Cornell, Target'sChiefExecutiveOfficer 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 turnaround from the 1.9% traffic decline in the prior quarter.
STRONG CONSUMER SPENDING
Target's report and bigger rival Walmart's WMT.N raising of its annual sales and profit forecasts last week are a sign that U.S. consumer spending is strong ahead of the Federal Reserve's expected rate cuts in September.
U.S. retail sales also rose more than expected in July, allaying fears that the U.S. economy was heading towards a recession following signs of a weakening job market.
"We see an incredibly resilient consumer in the face of high inflation and some of the other challenges they've been facing to manage their household budgets," Cornell said on a media call.
Target retained its full-year comparable sales forecast of flat to 2% rise, but cautioned that the growth will be skewed to the lower half of the range. Analysts polled by LSEG were expecting a 0.36% rise.
"The guide overall seems prudent not per se conservative," said Christopher Horvers, an analyst atJ.P. Morgan Securities LLC.
Target reported second-quarter earnings on both a net and adjusted basis of $2.57 per share. Analysts on an average were expecting $2.18 per share.
Its quarterly gross margin rate was 28.9%, up from 27% last year, in part due to a better grip on inventories and higher revenue at its advertising unit, Roundel.
Reporting by Ananya Mariam Rajesh and Savyata Mishra in Bengaluru and Siddharth Cavale in New York, Editing by Nick Zieminski
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