Target hits an earnings bull’s-eye as folks start reaching for “nice to have” products
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Quick Tarjay run… Target stock popped 11% yesterday after the retailer beat second-quarter expectations with sales rising 3% from a year earlier. It was an improvement from Q1, when sales dipped 3% as shoppers cut back on everything from paper towels to home decor. Target’s profit popped 40% as folks spent more on higher-margin discretionary items (groceries are generally not that profitable). Notably, Target’s apparel sales were up 3% (and sundresses are more lucrative than salad dressing).
In my discretionary era… Americans may be shifting back into the “don’t need it but want it” ethos. Target said that last quarter it saw an uptick in visits to its stores and website, and that consumers were starting to spend more on nice-to-have products like bathing suits and scented candles. Walmart also unloaded strong sales growth as merch sales (think: air fryers, sports gear) rose for the first time in 11 quarters. Meantime, discount-clothing retailers were humming along as folks treasure-hunted for deals like $12 Levi’s.
If the price is right, they might bite… Retailers are focusing on value to lure inflation-weary shoppers, and it seems to have paid off. In May, Target said it would cut prices on 5K+ consumer staples, and its CEO said the price reductions drove higher traffic last quarter. Walmart said it cut prices on 7K+ items, and it also unloaded a strong quarter. Walmart and Target have also hosted Amazon Prime-rivaling summer sales events to drive demand.