Target raises annual profit forecast after price cuts boost quarterly sales By Reuters

By Siddharth Cavale and Ananya Mariam Rajesh

(Reuters) – Target raised its annual profit forecast on Wednesday and beat Wall Street expectations for second-quarter comparable sales as more Americans shopped at its stores attracted by low-priced groceries and staples.

The big box retailer now expects 2024 earnings in the range of $9.00 to $9.70 per share, up from a previous range of $8.60 to $9.60, as strong sales, cost savings and leaner inventory helped it perform better than expected in the first half of the year.

Target has expanded its offerings of everyday essentials and private-label grocery and homewares to appeal to shoppers facing rapidly rising food prices and interest rates over the past two years.

This summer, the Minneapolis-based chain slashed prices on more than 5,000 popular items, including bread, soda, paper towels and pet food. In February, it introduced a new private label baseline called “dealworthy,” with most of its 400 items priced under $10. In addition, it expanded its “Good & Gather” and “Favorite Day” brands by adding 125 new food products.

Target CEO Brian Cornell said shoppers have responded to this “newness” and price cuts.

Apparel sales were also a bright spot, from several quarters of sales declines to a 3% increase in the quarter, led by private label lines “All In Motion” and “Wild Fable.”

Overall, shopper visits rose 3 percent in the quarter ended Aug. 3, with the strongest comparable sales gains coming in June and July, the company said. This marked a reversal from the 1.9% decline in traffic from the previous quarter.

Traffic drove a 2 percent rise in comparable sales for the second quarter, even as it saw a slight decline in the average bill spent at checkout and the number of items placed in carts, the company said.

On average, analysts had estimated a 1.15% increase in comparable sales, according to LSEG.

“We’re seeing an incredibly resilient consumer in the face of high inflation and other challenges they’ve faced in managing their household budgets,” Cornell said in a media call.

Target’s report and larger rival Walmart’s (NYSE: ) annual sales and profit forecast increase last week are a sign that the U.S. consumer is strong and could give the Federal Reserve something to think about ahead of planned interest rate cuts in September.

U.S. retail sales also rose more than expected in July, easing fears that the U.S. economy is headed for a recession amid signs of a weakening labor market.

Target maintained its full-year comparable sales forecast of flat growth at 2 percent, but warned that growth would be skewed toward the lower half of the range. Analysts polled by LSEG were expecting a 0.36% increase.

Michael Fiddelke, Target’s chief financial officer, said the company’s second-quarter sales exceeded its expectations. However, he expects sales growth to moderate to around 1% in the third quarter and during the fourth quarter holidays.

Target reported second-quarter earnings on both a net and adjusted basis of $2.57 per share. On average, analysts were expecting $2.18 per share.

Its quarterly gross margin rate was 28.9 percent, up from 27 percent last year, thanks in part to better inventory control and strong sales at its advertising unit, Roundel.