Pre-market surges by 15%! U.S. retail giant Target's "key metrics" rise for the first time in a year, raising full-year profit guidance | Financial Report Insights

With the steady recovery of consumer spending, the American discount retail giant Target ended the trend of declining performance for several consecutive quarters. Comparable sales rose by 2% in the second quarter, exceeding not only the average analyst expectations but also breaking the shrinking trend of the previous four quarters.

Comparable sales is a key indicator used in the retail industry to measure sales performance. It refers to the sales of stores that have been open for at least one year (also known as comparable stores) during the same time period. This indicator excludes the impact of newly opened or closed stores, providing a more accurate reflection of the sales growth or decline of existing stores.

Target also raised its full-year profit guidance, but remains relatively cautious about the full-year performance in the context of overall consumer spending downgrading.

On August 21, Target announced its second-quarter financial report for 2024.

1) Key Financial Data:

Revenue: Target's second-quarter sales increased by 2.6% year-on-year to $25.02 billion, higher than the market's expected $24.88 billion; comparable sales increased by 2%, higher than the market's expected 1.07%, breaking the shrinking trend of the previous four quarters with a 5.4% decline year-on-year.

Profit: The second-quarter operating profit margin was 6.4%, an increase of 160 basis points from the same period last year;

non-GAAP EBITDA increased by 26.4% year-on-year to $2.4 billion, exceeding the market's expected $2.06 billion;

GAAP adjusted earnings per share (EPS) increased by over 40% year-on-year to $2.57, surpassing the market's expected $2.10.

2) Performance Outlook:

Third Quarter: For the third quarter, Target expects comparable sales to increase by 1 to 2%, with the market expecting 1.91%, and GAAP and adjusted EPS expected to be between $2.10 and $2.40, with the market expecting $2.24.

Full Year: Based on the strong profit performance in the first half of the year, Target expects full-year GAAP and adjusted EPS to be between $9.00 and $9.70, higher than the previous forecast of $8.60 to $9.60, with the market expecting $9.22.

Driven by the strong financial report, Target's pre-market stock price surged by 17%, now narrowed to 15.2%. As of the Tuesday close, Target's stock price has only accumulated a 1.3% increase year-to-date, compared to a 17% increase in the S&P 500 index

Target CEO Brian Cornell stated in a conference call with reporters:

We are committed to restoring growth, and our team has delivered. We will maintain an offensive posture.

5000 Products Reduced in Price, Consumers Returning, Durable Goods Sales Recovering

The turnaround in performance marks Target's success in attracting consumers back after facing challenges of high inflation and high interest rates. In the second quarter, Target's foot traffic increased by 3% year-on-year, with varying degrees of foot traffic growth across the company's six departments.

Previously, durable goods consumption had significantly declined, impacting Target's core business. However, with the increase in store foot traffic and online sales, this trend is being reversed, and durable goods sales have improved for four consecutive quarters.

Amid comprehensive consumer downgrading, Target reduced prices on 5000 of its products and introduced new low-priced brands.

Cornell stated:

We are very pleased with the consumer response to the price reductions on 5000 items. This has undoubtedly driven foot traffic growth this quarter - we expect foot traffic growth to continue for the remainder of the year.

However, Cornell declined to disclose whether further price reductions are planned.

Analyst Jennifer Bartashus pointed out that the positive foot traffic indicates that the price reduction strategy and the new assortment of durable goods are resonating with shoppers. She believes that even with price reductions on essential items, the expansion of profit margins is encouraging.

Target's strong growth in the second quarter was also benefited from a lower base in the same period last year. A year ago, Target's business significantly slowed as the pandemic boom ended.

Raised Full-Year Profit Guidance, Target Remains Cautious

Despite the improvement in performance, Target remains relatively cautious about its outlook for the year amid economic uncertainty.

Target maintained its forecast of flat to 2% growth in same-store sales for the year, but expects results to be at the lower end of that range. Due to the "strong profit performance" in the first half of the year, Target raised its full-year EPS expectations.

This quarter, Target's customer loyalty program has also been a focus, with the company launching new paid membership plans and two "Circle Week" promotional events this year.

Company executives stated that these efforts are attracting consumers, believing that consumers still have resilience and are looking for stylish, affordable products.

As for Target's main competitors, their outlook for the second half of the year varies significantly.

Walmart raised its full-year performance guidance last week, stating that they have not seen signs of consumer spending slowing down. Macy's lowered its sales forecast for this year due to increasingly cautious consumers and more discounts from competitors. Home Depot and Lowe's lowered their performance guidance due to a cold real estate market and consumers waiting for interest rate cuts from the central bank