Target said its sales grew about 3% in its fiscal Q2, a return to growth after a prolonged stretch of sluggish sales and squeezed profits on Wednesday. Target, the discount retailer shredded Wall Street profit forecasts on Wednesday, topping the earnings by $0.39 a share on the back of renewed traffic to stores.
Traffic at Target increased by 3%, with all six departments contributing to the improvement. The discounter beat Wall Street’s earnings and revenue expectations, as shoppers made more visits to Target’s stores and website, and bought more discretionary items like clothing.
Target earnings and profit rise
Even so, the company stuck by its previous full-year sales forecast and struck a cautious note. Target said it expects comparable sales for the full year to range from flat to up 2%, but said it now expects the increase will likely be in the lower half of the range.
Target raised its profit guidance, however, saying it expects adjusted earnings per share to range from $9 to $9.70, up from the previous range of $8.60 and $9.60.
The company’s share price closed about 11% higher on Wednesday as Target showed improvement in generating profits.
Chief Operating Officer Michael Fiddelke said Target took a “measured approach” with its outlook because it’s hard to predict consumers’ mindsets and the state of the economy in the coming months.
“While we’ve been pleased with our performance so far this year, and our view of the consumer remains largely the same, the range of possibilities and the macroeconomic backdrop in consumer data and in our business remains unusually high,” he said.
Target’s Q2 results
Here’s what Target reported for the Q2 compared with what Wall Street expected, based on a survey of analysts by LSEG:
Target’s earnings per share: $2.57 vs. $2.18 expected
Target’s revenue: $25.45 billion vs. $25.21 billion expected
Net income of Target jumped to $1.19 billion, or $2.57 per share, from $835 million, or $1.80 per share, in the year-ago quarter. That’s a more than 40% year-over-year increase.
Total revenue rose from $24.77 billion in the prior year.
Comparable sales climbed 2% in the quarter, the first time in five quarters that Target posted a gain. The industry metric tracks sales online and at stores open at least 13 months.
Digital sales drove most of those gains, growing 8.7% in the quarter, as more customers used same-day services like curbside pickup and home delivery. Comparable store sales rose slightly, up 0.7%.
Target’s sales strategy
Those trends improved in the Q2, as Target attracted shoppers with new merchandise and reduced prices.
Target has tried to rev up sales and drive higher foot traffic by deepening loyalty and offering discounts. The company relaunched its loyalty program early this year and introduced a new paid membership, Target Circle 360, that includes perks like free same-day deliveries. Target threw its own sales event in July to compete with Amazon’s Prime Day. And it announced in May that it would cut prices on about 5,000 frequently bought items, including diapers, milk and paper towels.
Target price cuts increased sales
CEO Brian Cornell said customers have responded well to the price reductions and credited them for contributing to traffic growth in the quarter.
Customer traffic across Target’s website and store grew 3% in the second quarter compared with the year-ago period. The average size of customers’ shopping baskets, however, declined slightly, Fiddelke said.
Discretionary sales, which have been under pressure across the retail industry, improved. Target said apparel sales, for instance, grew more than 3% in the quarter compared with the year-ago period.
Back-to-school season helped
Back-to-school has also been an important season for the retailer. Chief Commercial Officer Rick Gomez said on the call with reporters that the shopping season has matched Target’s expectations, as many customers gravitate toward items with good value like backpacks that cost $5 and crayons that cost 25 cents.
He said back-to-college shopping tends to be a longer season, as students gradually decorate their apartments and dorms.
Stock update
Share price of Target closed at $159.25 on Wednesday after accounting for a dividend payment. As of Wednesday’s close, the company’s stock surged by about 12% so far this year. That has trailed behind the S&P 500′s greater than 17% gains during the same period.
