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US retail chain Target is emerging from a yearlong slump with growing sales and a brighter profit outlook, suggesting that American consumers still have spending power despite cost pressures on their finances.
Target on Wednesday reported that its comparable sales rose 2 per cent in its second quarter, the company’s first increase in more than a year.
Traffic grew 3 per cent to Target’s nearly 2,000 stores and online, more than offsetting a decline in the amount spent on the average transaction.
“Consumers have shown remarkable resilience in the face of multiple challenges over the last several years, and they remain resilient today,” said Brian Cornell, Target’s chief executive.
The earnings report comes at a time of close scrutiny of the health of consumers whose spending propels two-thirds of the US economy.
An array of food, consumer goods, travel and leisure companies have in recent weeks blamed falling sales on belt-tightening after years of high inflation helped to deplete household savings. But recent data from big retailers points to a more nuanced picture.
Walmart last week reported unexpectedly strong comparable sales growth of 4.2 per cent and market share gains thanks in part to consumers seeking out the low prices it is known for.
At warehouse club chain Costco, comparable sales have climbed in each of the past three months, reaching a growth rate of 5.2 per cent last month. Overall US retail sales outstripped expectations in July.
Target had reported four consecutive declines in comparable sales over the previous four quarters ending in May. Its share price had risen just 1 per cent this year by Tuesday’s close, trailing Walmart’s 42 per cent gain for the year. Walmart’s strength has been in part down to its greater concentration than Target on staples such as groceries.
In the latest quarter, however, Target said sales of more discretionary goods were improving, particularly in categories such as apparel and beauty. The launch of new items, from candy to a L’Oréal Paris-branded home hair dye gadget, also helped boost sales, executives said.
As it has fought to win back customers, Target has lowered prices. In May it announced discounts on 5,000 items over the summer, following a similar announcement from Walmart.
“That’s certainly contributed to traffic growth during the quarter. We expect that to continue over the balance of the year,” Cornell said.
Sales plummeted in the second quarter a year ago when Target suffered from a backlash against Pride month-themed merchandise. The company removed certain items then and scaled back the extent and prominence of the displays this year.
Analysts said before the results were released that this quarter would be flattered by comparison with last year, but executives sounded confident that the gains would persist.
Target reported revenue of $25.5bn in the quarter, 2.7 per cent higher than a year before and surpassing expectations of $24.9bn, according to estimates compiled by Bloomberg.
Net profit of $1.2bn was up 43 per cent year on year and outpaced the consensus estimate of $1bn. The company also raised its earnings forecast for the current fiscal year to between $9 and $9.70 per share, up from a range of $8.60 to $9.60.
Target’s operating profit margin reached 6.4 per cent, up 1.6 percentage points from a year before and well above a long-term management goal of 6 per cent.
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