Target's lower grocery prices pay off, providing 2nd quarter boost
Target's comparable sales rose for the first time in a year as grocery aisle deals for cash-strapped customers began to pay off.
Sales at stores and digital channels operating over at least the past 12 months rose 2% in the second quarter reversing months of declines, including a 3.7% drop in the previous quarter, and a 4.4% decline during the company's final quarter of last year.
The number of transactions at the Minneapolis retailer increased 3% compared with the same period last year, with all six main merchandising categories, including fashion and home goods, showing strength. Online sales rose 8.7% and comparable sales in clothing increased 3% compared with a year ago as customers embraced new store brands like All in Motion and Wild Fable.
Target's profits and sales beat Wall Street expectations. The company increased its annual profit outlook but said that sales for the year could fall at the low end of its guidance for unchanged to a 2% increase.
Shares spiked 11% before the opening bell.
"We are seeing an incredibly resilient consumer in the face of high inflation," Target's CEO Brian Cornell said. "They are looking for newness, but they are also shopping looking for value."
More than 50% of Target's annual sales come from discretionary items like toys, fashion and electronic gadgets, which had become problematic with Americans laser focused on necessities like groceries after a run-up in inflation after the pandemic.
But Target also had some missteps with its shoppers. Its comparable sales fell 5.4% i n its fiscal second quarter a year ago, its first drop in six years, when it hit by the backlash from some of its customers to its Pride merchandise.
To reverse weak sales, Target in May said it would cut prices on thousands of consumer basics over several months, from diapers to milk.
It's also trying to make shopping at its stores more convenient and enjoyable as it tries to compete with Amazon and Walmart.
Target announced a new paid membership program in April called Target Circle 360, which comes with unlimited free same-day delivery for orders over $35 and free two-day shipping for all orders. The annual $99 per year membership is getting a strong reception, with the company adding more than 2 million Target Circle members in the second quarter.
Target also has been expanding its store label brands and now has a portfolio of 45 labels including more recent ones like Figment, a kitchenware collection launched last year.
The discounter said it earned $1.19 billion, or $2.57 per share, in its second quarter. That compared with $835 million, or $1.80 per share, in the year-ago period.
Sales rose nearly 3% to $25.45 billion. But even as the number of transactions rose during the latest quarter, the average amount that shoppers spent fell, underscoring that people were focusing on deals, company executives said.
Analysts were expecting profits of $2.18 per share on sales of $25.19 billion in the latest quarter, according to FactSet.
Target now expects earnings per share for the year to range of $9 to $9.70 for the year. That's up from a previous forecast range from $8.60 to $9.60. Analysts expected $9.23 per share, according to FactSet.
While Target said it believes its full-year guidance range of unchanged to a 2% increase in its comparable sales remains appropriate, it now believes the increase will more likely be in the lower half of that range.