Target's stock rockets as store traffic grows, discretionary spending picks up

By Tomi Kilgore

Discount retailer beats profit, revenue and comparable sales expectations, boosts profit outlook and buys back stock for the first time in 2 years

Shares of Target Corp. rocketed toward a three-month high Wednesday, after the discount retailer reported a triple beat for its fiscal second-quarter and raised its full-year profit outlook, citing "meaningfully" improving trends across discretionary categories.

The company also said traffic in its stores increased for the first time in over a year, leading to growth in comparable sales to snap a four-quarter streak of declines.

"[O]ur growth was driven entirely by traffic in stores and our digital channels, with double-digit growth in our same-day delivery services," said Chief Executive Brian Cornell. "We also saw improving trends across our discretionary categories, most notably in apparel, and we're seeing continued strength in beauty."

He added on the post-earnings call with analysts that he was "pleased" to get back to share repurchases, for the first time in two years.

The stock (TGT) soared 13.9% in morning trading, toward the highest close since May 10. It was also headed for the biggest one-day gain since Nov. 15, 2023, when it shot up 17.8% after reporting an earnings beat for the third quarter that year.

Target reported net income for the quarter to Aug. 3 that rose to $1.19 billion, or $2.57 a share, from $835 million, or $1.80 a share, in the same period a year ago. That beat the FactSet consensus for earnings per share of $2.18.

Total revenue grew 2.7% to $25.45 billion, above the FactSet consensus of $25.19 billion.

And comparable sales, or sales of stores open at least 13 months, increased 2.0% to beat the FactSet consensus for a 1.1% increase. Traffic rose 3.0% - the first increase since the first quarter of 2023 - to offset a 0.9% decline in the average transaction amount, which included lower pricing.

Also read: 'We know consumers are feeling pressured': Target to cut prices on 5,000 items ahead of Memorial Day weekend.

"Discretionary sales trends continued to improve meaningfully, with apparel comparable sales growing more than 3% in the quarter," Target said.

The rise in apparel sales followed a sharp turnaround, from a decline of 2% in the first quarter.

Beauty remained a "standout," as sales surged 9% in the second quarter, while food and beverage and essentials categories also saw traffic growth.

CEO Cornell said, according to an AlphaSense transcript of the post-earnings call with analysts, that while many consumers are still delaying purchases "until the moment of need," they continue to show "remarkable resilience" and still turn out and shop around holidays and other seasonal events.

While the company did not provide an estimate of when discretionary sales trends would inflect from improving to actual growth, there was some optimism about current quarter comparable sales given Target was in the "heart of back-to-school season" and in the "early chapters of back-to-college," and was "excited" about the upcoming Halloween season.

Separately, the Target said it spent $155 million to buy back 1.1 million shares of its common stock. The last time Target had repurchased shares was the fiscal second quarter of 2022, when it paid $2.64 billion to buy back 12.5 million shares.

"We expect to have continued repurchase capacity in the back half of 2024, and in the years ahead," said Chief Financial Officer Michael Fiddelke.

Looking ahead, the company expects third-quarter adjusted EPS of $2.10 to $2.40, compared with the current FactSet consensus of $2.22, and projects comparable sales to be flat to up 2% versus expectations of 1.5% growth.

For the full year, Target raised its guidance range for EPS to $9.00 to $9.70 from $8.60 to $9.60 and said comparable sales growth will be in the lower half of previously provided growth guidance of flat to up 2%.

Target's stock has run up 14.5% year to date, while shares of rival Walmart Inc. (WMT) have soared 42.8% and the S&P 500 index has advanced 17.7%.

-Tomi Kilgore

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08-21-24 1014ET

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