Target Aims for Sales Growth, Cuts Prices on Thousands of Items

Target Introduces $49 Annual Membership

Target plans to boost sales growth with Memorial Day and July 4th sales events, price cuts on thousands of items, and the introduction of “dealworthy” products.

Quick Read

  • Target plans to boost sales growth in the current quarter with Memorial Day and July 4th sales events.
  • The company slashed prices on 1,500 products and aims to lower prices on 5,000 grocery items this summer.
  • It introduced “dealworthy,” a line of 400 products starting below $1, with most under $10, in January.
  • Despite a 3.7% decline in comparable sales in Q1, strong beauty sales offset a slowdown in home entertainment and appliances.
  • Target expects Q2 comparable sales to be flat to up 2% and adjusted earnings of $1.95 to $2.35 per share.
  • Analysts anticipated a 1.39% comparable sales increase and profit of $2.19 per share.
  • The company maintains its full-year target with comparable sales flat to up 2% and earnings of $8.60 to $9.60 per share.
Target Introduces $49 Annual Membership

Target Aims for Sales Growth

Target said it expects consumer caution to persist after reporting quarterly earnings that missed Wall Street estimates and issuing a forecast for the current quarter largely below expectations. Shares fell 8% premarket after posting adjusted earnings per share of $2.03, 3 cents below analysts’ expectations, according to LSEG data. The stock has lost more than 40% of its value since touching an all-time high in Nov. 2021.

Its disappointing earnings and outlook stood in contrast to larger peer Walmart, which last week reported better-than-expected results and raised its annual outlook as shoppers prioritized food and essentials like toilet paper and detergent.

“This performance is significantly worse than the overall market, which underlines that Target is losing share,” said Neil Saunders, Managing Director of GlobalData. “All in all, the picture painted by today’s figures is of a business that has run out of steam.”

Companies ranging from McDonald‘s to PepsiCo have flagged in recent weeks the strain that Americans are under due to sticky food inflation and the rising costs of eating out, rents, and mortgages.

“We remain cautious in our near-term growth outlook and we expect consumer discretionary trends to remain pressured in the short term,” said Christina Hennington, Target’s chief growth officer, on a media call. Higher interest rates, economic uncertainty, and higher credit card balances have kept consumers concerned, she added, noting that consumer confidence took a meaningful dip in April.

Shoppers are delaying their purchases to take advantage of deals, while also spending more time on out-of-home activities, Target’s CEO Brian Cornell said during a media call. Despite ongoing inflation in food and essentials, spending in these categories remained resilient, which Cornell attributed to a strong labor market.

Target expressed its determination to return to sales growth in the current quarter, focusing on sales events planned for Memorial Day and the July 4th weekend, as well as price cuts on thousands of items this year. The company recently reduced prices on 1,500 products, with plans to eventually lower prices on 5,000 grocery items over the summer. This initiative followed the introduction of “dealworthy” in January, a new line of 400 products priced below $1, with most under $10.

“What is really disappointing if you look past this quarter, is that second-quarter guidance. A lot of people had a lot of higher expectations,” said Christian Greiner, senior portfolio manager at F/m Investments, which holds Target as part of its large-cap value dividend strategy.

Target expects comparable sales in the second quarter to recover from its four straight quarterly declines, being flat to up 2%. It expects adjusted earnings of $1.95 to $2.35 per share. Analysts, on average, had anticipated a comparable sales increase of 1.39% and profit of $2.19 per share.

In the first quarter, ended May 4, comparable sales declined 3.7%, in line with expectations. Strong beauty sales partially offset a slowdown in discretionary items such as home entertainment, furniture, and appliances. Apparel sales were a bright spot, the company said.

Target maintained its full-year target, with comparable sales seen flat to up 2%, and earnings of $8.60 to $9.60 per share.

Telsey Advisory Group analyst Joseph Feldman noted that nearly all retailers, not just Target and Walmart, have indicated an expectation for improvement in the second half of the year. “But it’s been a little, you know, slower than we initially anticipated.”

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