Target's Stock Rockets Due to a Booming Store Traffic and a Rise in Discretionary Spending

Target Corp. saw its shares surge to a three-month high on Wednesday, following the release of its fiscal second-quarter results, which exceeded expectations on multiple fronts. The discount retailer not only delivered a "triple beat"—surpassing estimates for earnings, revenue, and comparable sales—but also raised its full-year profit outlook. The company attributed these strong results to significant improvements in discretionary spending categories.

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One of the key highlights of Target’s performance was the increase in store traffic, marking the first time in over a year that the company experienced growth in this area. This uptick in foot traffic contributed to a rise in comparable sales, breaking a streak of four consecutive quarters of declines. CEO Brian Cornell emphasized that this growth was driven entirely by traffic in both physical stores and digital channels, with same-day delivery services experiencing double-digit growth. Cornell also pointed out that discretionary categories, particularly apparel, showed notable improvement, and the beauty segment continued to perform strongly.

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During the post-earnings call with analysts, Cornell expressed satisfaction with the company’s decision to resume share repurchases, which had been paused for two years. The stock reacted positively to the news, soaring 13.9% in morning trading, heading toward its highest close since May 10. This jump also marked the largest one-day gain since November 15, 2023, when Target’s stock had risen 17.8% following another earnings beat in the third quarter of that year.

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Target reported net income of $1.19 billion for the quarter ending August 3, up from $835 million a year earlier. This translated to earnings per share (EPS) of $2.57, significantly higher than the $2.18 per share that analysts had anticipated, according to FactSet. The company’s total revenue grew by 2.7% to $25.45 billion, surpassing the consensus estimate of $25.19 billion.

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Comparable sales, which measure sales at stores open for at least 13 months, increased by 2.0%, exceeding the FactSet consensus of a 1.1% rise. This growth was fueled by a 3.0% increase in store traffic, which offset a 0.9% decline in the average transaction amount. The decline in transaction value was largely due to lower pricing, but the overall rise in traffic helped to drive sales.

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Target noted that discretionary sales trends showed meaningful improvement, with apparel sales growing by more than 3% in the quarter. This was a sharp rebound from a 2% decline in apparel sales in the first quarter. Beauty sales remained a standout, with a 9% increase in the second quarter, and the food, beverage, and essentials categories also saw growth in traffic.

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In the post-earnings call, Cornell acknowledged that many consumers are still delaying purchases until absolutely necessary. However, he noted that consumers continue to demonstrate remarkable resilience, especially around holidays and other seasonal events. Although the company did not specify when discretionary sales trends might shift from mere improvement to actual growth, there was optimism regarding the current quarter. Target is in the midst of the back-to-school season and the early stages of back-to-college shopping, and the company is excited about the upcoming Halloween season.

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In addition to the strong quarterly performance, Target announced that it had spent $155 million to repurchase 1.1 million shares of its common stock. This was the first time the company had bought back shares since the fiscal second quarter of 2022, when it repurchased 12.5 million shares for $2.64 billion. Chief Financial Officer Michael Fiddelke indicated that Target expects to have continued share repurchase capacity in the second half of 2024 and in the years ahead.

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Looking ahead, Target provided guidance for the third quarter, projecting adjusted EPS of $2.10 to $2.40. This range compares with the current FactSet consensus of $2.22. The company also expects comparable sales to be flat to up 2%, slightly below the expected 1.5% growth. For the full year, Target raised its EPS guidance range to $9.00 to $9.70, up from the previous range of $8.60 to $9.60. The company anticipates that comparable sales growth will fall within the lower half of its previously provided guidance of flat to up 2%.

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Year to date, Target’s stock has climbed 14.5%, while shares of its competitor, Walmart Inc., have soared 42.8%. The S&P 500 index has advanced 17.7% during the same period.

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