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Target's ( TGT ) Q2 comparable sales up 2%, beat LSEG estimates of

1.15%

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Raises 2024 profit forecast to $9.00-$9.70/shr from

$8.60-$9.60

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CEO says shoppers responding to newness and price cuts

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Shares up 16%, biggest one-day gain in months

By Ananya Mariam Rajesh, Siddharth Cavale

Aug 21 (Reuters) - Target ( TGT ) raised its full-year

profit forecast on Wednesday and reported its first increase in

quarterly comparable sales in over a year, driven by price cuts

that attracted more shoppers to its stores.

Target's ( TGT ) results reflect a similar strategy employed by

Walmart ( WMT ) and other retailers looking to attract increasingly

price-sensitive consumers. It shows that

U.S. consumers are constrained but not in recession mode:

they are holding out for deals but have some financial

flexibility, analysts and industry watchers said.

Shares of the Minneapolis-based retailer rose 16%, touching

a near four-month high of $167.40. The stock was set for its

best day in over nine months after the chain said it expects

2024 profit in the range of $9.00 to $9.70 per share, up from

its prior forecast of $8.60 to $9.60.

Traffic drove all its gains in comparable sales as price

cuts on thousands of items proved to be a powerful lure for

shoppers who have been dealing with a rapid rise in grocery

prices and interest rates, the company said.

"The consumer is feeling nervous and pinched, and that will

weigh on overall spending, but consumers still have plenty of

purchasing power. They're just being picky about where they

spend," said Brian Jacobsen, chief economist at Annex Wealth

Management.

Second-quarter comparable sales, or sales from online and

stores open at least 12 months, rose 2% in the quarter ended

Aug. 3, the first rise in over a year. Analysts on average

estimated a 1.15% rise in comparable sales, according to LSEG.

Rising prices of food and items made for immediate

consumption since the pandemic have led Americans to prioritize

spending on groceries and everyday essentials, while cutting

back on purchases of apparel, electronics, and home goods, which

are key categories for Target ( TGT ).

To reverse more than a year of sales declines, Target ( TGT )

reduced prices on over 5,000 popular items, including bread,

soda, paper towels, and pet food this summer. In February, it

introduced a new private-label basics line called dealworthy,

with most of the 400 items priced under $10. Additionally, it

expanded its Good & Gather and Favorite Day brands by adding 125

new food products.

"When your budget's getting squeezed, that works in Target's ( TGT )

favor and probably hurts Macy's and Nordstrom ( JWN ), but it helps

Target ( TGT ) because they are providing a low-cost alternative," said

Bill Smead, chief investment officer of Smead Capital

Management, which owns Target ( TGT ) shares worth over $170 million.

Target ( TGT ) ran its Circle Week sales event in July, with an

early focus on back-to-school products, which stimulated

interest among shoppers, driving online sales up 8.7% in the

quarter.

Brian Cornell, Target's ( TGT ) Chief Executive Officer said

"newness," price cuts and sales events were key factors that

drove a 3% rise in visits to its nearly 2,000 stores. This was a

turnaround from the 1.9% traffic decline in the prior quarter.

"They are among the few retailers with Walmart ( WMT ) and Costco

... that have been getting positive traffic to the stores and

traffic is ultimately what you want because that really does

translate into better sales," Telsey Advisory Group analyst

Joseph Feldman said.

STRONG CONSUMER SPENDING

Target's report and bigger rival Walmart's ( WMT ) raising of

its annual sales and profit forecasts last week are a sign that

U.S. consumer spending is strong ahead of the Federal Reserve's

expected rate cuts in September.

U.S. retail sales also rose more than expected in July,

allaying fears that the U.S. economy was heading towards a

recession following signs of a weakening job market.

"We see an incredibly resilient consumer in the face of high

inflation and some of the other challenges they've been facing

to manage their household budgets," Cornell said on a media

call.

Target ( TGT ) retained its full-year comparable sales forecast of

flat to 2% rise, but cautioned that the growth will be skewed to

the lower half of the range. Analysts polled by LSEG were

expecting a 0.36% rise.

"The guide overall seems prudent not per se conservative,"

said Christopher Horvers, an analyst at J.P. Morgan Securities

LLC.

Target ( TGT ) reported second-quarter earnings on both a net and

adjusted basis of $2.57 per share. Analysts on an average were

expecting $2.18 per share.

Its quarterly gross margin rate was 28.9%, up from 27% last

year, in part due to a better grip on inventories and higher

revenue at its advertising unit, Roundel.