Target's Price Cuts Propel Sales Growth, Revise Profit Forecast

Target raised its full-year profit forecast and reported a significant increase in quarterly comparable sales for the first time in over a year, driven by strategic price cuts on thousands of items. This move attracted more shoppers to its stores, reflecting strong consumer spending and resilience amid rising grocery prices and interest rates.

Target raised its full-year profit forecast on Wednesday, marking the first increase in quarterly comparable sales in over a year due to price cuts that lured shoppers to its stores.

Shares of the Minneapolis-based retailer surged by 11% in premarket trading following the announcement. The company now 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. Second-quarter comparable sales rose by 2%, surpassing analysts' average estimate of a 1.15% rise, according to LSEG. Target attributed all the gains to increased traffic spurred by price cuts on thousands of items, appealing to shoppers grappling with high grocery prices and interest rates.

This summer, the retailer slashed prices on over 5,000 popular items, such as bread, soda, paper towels, and pet food. It also launched a new private-label basics line called Dealworthy, and expanded its Good & Gather and Favorite Day brands. CEO Brian Cornell emphasized that shoppers responded positively to these changes.

Apparel sales also saw a turnaround, rising by 3%, with private-label lines like All In Motion and Wild Fable leading the gains. Target's positive report, along with Walmart's upbeat annual sales and profit forecasts, signals strong U.S. consumer spending ahead of anticipated Federal Reserve rate cuts in September.

The shift towards grocery and everyday essentials since the pandemic has been challenging for Target, which relies heavily on discretionary products. Despite this, the company reported gains across all its merchandising categories, including home decor and clothing. For the second quarter, Target reported earnings of $2.57 per share, surpassing analysts' expectations of $2.18 per share. Its quarterly gross margin rate improved to 28.9% from last year's 27%, partly due to better inventory management and increased revenue from its advertising unit, Roundel.

(With inputs from agencies.)