Target slashed prices. It paid off
A customer shops at a Target store on May 20
New York (CNN) — Target’s sales rose for the first time in a year, snapping a big losing streak. It’s the latest sign US consumers are still spending at stores – as long as shoppers believe those stores are offering good value.
Target’s sales at stores open at least one year increased 2% last quarter, and its profit boomed 36%. The company’s stock (TGT) surged 13% in premarket trading.
Target was boosted by price cuts. The company slashed prices on 5,000 frequently bought items at stores to draw customers. That strategy worked. Foot traffic to Target’s stores increased 3% during the quarter, and shoppers spent on discretionary products like clothing.
“Consumers are showing resiliency as they continue to search for value and focus on essentials, while selectively spending on discretionary items,” Joseph Feldman, an analyst at Telsey Advisory Group, said in a recent note to clients.
Still, Target signaled a cautious outlook for the rest of the year, a sign it expects consumers to spend carefully. Target expects sales to rise by up to 2% this year but said it would likely come in lower than that.
Breaking a losing streak
Target’s sales increase last quarter snaps four consecutive quarters of declining sales for the chain.
Target’s sales and profit surged during the height of the pandemic in 2020 and its run continued until 2023. But Target has struggled over the past year.
Heading into Wednesday, Target’s stock was flat on the year, trailing the S&P 500.
Target’s core middle-class customer base has been strained by higher prices and pulled back on discretionary goods like home decor, electronics and nonessential clothing in favor of groceries and everyday essentials.
Target has also slumped because of its merchandise mix and higher prices compared to rivals like Walmart.
The chain stocks more non-essential merchandise compared to competitors such as Walmart and Costco. More than half of Target’s merchandise is discretionary. Target in recent years has added more food and essentials to its stores, but still trails Walmart, which gets around half of sales from groceries.
Walmart’s US sales at stores open for at least one year increased 4.2% last quarter.
While consumers are spending at Walmart and Target, they are cutting back elsewhere.
Starbucks and McDonald’s are struggling as people reject higher fast-food prices in favor of home-cooked meals. Home Depot and Lowe’s have also posted sales declines as Americans take on fewer major home renovation projects.
This is a developing story and will be updated.
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