Target’s shares experienced a notable rise, climbing over 10% in premarket trading, after the company announced its fiscal second-quarter results. The retailer reported a 3% increase in sales, signaling a return to growth after several quarters of stagnant performance and declining profits. This improvement has been largely driven by an increase in customer visits, both in-store and online, with a particular boost in discretionary spending, including apparel.
Despite this positive momentum, Target remains cautious about the remainder of the year. The company continues to predict that its full-year comparable sales will range from flat to a 2% increase, with the likelihood that growth will hover at the lower end of this spectrum. However, Target has revised its profit forecast upwards, now expecting adjusted earnings per share between $9 and $9.70, compared to its previous estimate of $8.60 to $9.60.
In the second quarter, Target’s earnings per share came in at $2.57, surpassing Wall Street’s expectations of $2.18. The company’s revenue also exceeded projections, reaching $25.45 billion versus the anticipated $25.21 billion. This performance reflects a more than 40% year-over-year increase in net income, which rose to $1.19 billion from $835 million in the same quarter last year.
Digital sales were a key contributor to this growth, rising by 8.7% as more customers utilized same-day services like curbside pickup and home delivery. In-store sales also experienced a slight uptick of 0.7%. This quarter marks the first time in five quarters that Target has reported a gain in comparable sales, which include sales at stores open for at least 13 months as well as online transactions.
To enhance customer loyalty and drive foot traffic, Target has rolled out several strategic initiatives. These include the relaunch of its loyalty program earlier this year and the introduction of a new paid membership, Target Circle 360, which offers perks like free same-day deliveries. Additionally, Target staged its own sales event in July to compete with Amazon’s Prime Day and announced price reductions on around 5,000 frequently purchased items, such as diapers, milk, and paper towels. These strategies have resonated well with customers, leading to increased traffic during the quarter.
Customer traffic across Target’s stores and website increased by 3% year-over-year, although the average shopping basket size saw a slight decrease. Despite this, discretionary sales, which have been under pressure throughout the retail sector, showed signs of recovery. For instance, Target’s apparel sales rose by over 3% during the quarter.
The back-to-school shopping season has also played a crucial role in Target’s recent success, with value-oriented products like $5 backpacks and 25-cent crayons being particularly popular. The back-to-college shopping season, which typically extends over a longer period, is also performing in line with the company’s expectations.
While Target’s stock has risen by about 1% so far this year, it remains behind the S&P 500, which has gained around 17% during the same period. Nevertheless, the company’s strong second-quarter results and strategic initiatives have positioned it well for the coming months, even as it faces an uncertain economic outlook.