If we lower the prices of milk, meat and bread in this inflation-ridden economy, the consumer will notice it as they browse the supermarket shelves.
This is especially true for bargain hunters at Target (TGT).
The discount retailer beat Wall Street earnings forecasts by $0.39 on Wednesday, driven by increased customer traffic in its stores. Customer traffic increased 3 percent, with all six of Target’s departments contributing to the improvement.
As Target CEO Brian Cornell explains, the retailer’s comeback quarter is due to a series of price cuts this summer on 5,000 everyday items – items where Target had lost market share to rival Walmart (WMT) for several quarters in a row.
“We’re very pleased with the consumer response to the 5,000 items we saw discounts on,” Cornell told Yahoo Finance on a call with reporters. “That certainly contributed to traffic growth during the quarter — we expect that to continue for the rest of the year.”
Cornell declined to comment on whether there will be further price reductions.
Target remained cautious with its full-year sales forecast as it heads into the peak back-to-school and holiday season. However, the company raised its full-year earnings forecast in light of the better-than-average second quarter and improved customer traffic.
“Walmart’s second-quarter results demonstrated that value and convenience resonate well with consumers. We believe Target’s increased focus on value positions it well for future market share gains, including improving price differentials and launching several new private label brands focused on value and entry-level pricing,” Bank of America analyst Robbie Ohmes said in a note to clients.
The results overview
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Net sales: +2.7% year-on-year to $25.5 billion (estimates: $24.88 billion)
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Gross profit margin: 28.9% compared to 27% a year ago, compared to estimates of 28%
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Diluted EPS: +43% year-on-year to $2.57 versus estimates of $2.18 (forecast: $1.95 to $2.35)
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Comparable sales: +2% year-on-year (last year it fell 5.4%; Walmart US reported a gain of 4.2% in Q2 2024) versus an estimate of -1.07%
What else caught our attention
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Inventory levels remained relatively unchanged compared to the previous year.
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The company resumed its share buybacks, acquiring $155 million worth of shares during the quarter, with $9.5 billion still available for buybacks due to prior authorization.
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The number of transactions increased by 3% during the quarter, while the average transaction amount decreased by 0.9%.
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Target ended the quarter with nearly $3.5 billion in cash.
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Earnings per share for the third quarter are expected to be in the range of $2.20 to $2.40, with estimates at $2.24.
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Earnings per share for the full year are estimated at $9 to $9.70 (previously: $8.60 to $9.60), up from $9.22.
Three times a week I conduct insightful conversations with the biggest names in business and markets on my Opening bid Podcast. You can find more episodes on our Video Hub. See on your preferred streaming service. Or listen and subscribe on Apple Podcasts, Spotifyor wherever you find your favorite podcasts.
In the following episode of Opening Bid, Bill George, former Target board member and CEO of Medtronic (MDT), shares what Starbucks (SBUX) and Boeing (BA) need to do to turn things around.
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