(Bloomberg) — Target Corp. lifted its full-year guidance after results outpaced estimates in the latest quarter, suggesting the big-box retailer may be moving past a lengthy sales slump.
The company now expects net sales to increase about 5% in the current fiscal year, which ends in early 2027 — a percentage point higher than the previous guidance. Target also raised its adjusted earnings target after second-quarter sales surpassed analyst estimates.
“We’re encouraged by the progress made so far and we’re also clear-eyed about the important work still ahead,” Chief Executive Officer Michael Fiddelke said on a call with reporters.
The shares rose 4.3% Wednesday, closing at their highest level in nearly two years and extending their year-to-date gains to 63%.
Target is looking for consistent growth following three years of declining revenue. The results and guidance may boost confidence in Fiddelke’s strategy, which is centered on improving merchandise, technology and the shopping experience.
Comparable sales, which measure results at locations open at least a year, rose 3.8% during the quarter ended Aug. 1, driven by higher traffic. That was a slowdown from the prior quarter’s growth. Earnings per share, excluding some items, surpassed the average estimate, in part due to $994 million of pretax tariff refund benefits.
Target now expects full-year adjusted earnings of $9.90 to $10.90, including tariff refunds. The company has received the vast majority of refunds it applied for but expects some additional money to still come in.
RBC Capital Markets analyst Steven Shemesh said Wednesday that the bar was high ahead of Target’s results and the company is likely taking a conservative approach to setting guidance.
In order “for shares to move meaningfully higher,” Target will need to show that its performance can accelerate in the second half of the year, Shemesh wrote in a research note.
Target, which in past decades helped drive the “cheap chic” trend across retail, is seeking to win back shoppers with buzzy products like protein-heavy potato chips and floral-patterned phone cases. It’s an important pivot for the retailer after its inventory’s allure waned in recent years.
The company was hurt by shoppers’ prioritization of groceries and essentials over home goods and clothes, which are traditionally two of Target’s key categories. Political controversies have also weighed on demand, especially after last year’s changes to diversity policies. In the meantime, rivals Walmart Inc. and Costco Wholesale Corp. have gained ground by emphasizing value and upgrading their offerings.
This has led to sweeping changes, including the merchandise overhaul focusing on new, exclusive items as Target seeks to create a treasure-hunt experience. The company, which has more than 2,000 stores, is also working to reduce wait times while improving in-stock levels and interactions with staff.
Target’s customers are responding to the changes, company executives said on the call, pointing to healthy growth in food, beauty, toys, gadgets and sports categories.
The Minneapolis-based company recently carried out the biggest change to its assortment of packaged food in more than a decade. Snack sales grew by double digits in the second quarter, with protein and healthier items also performing well.
Baby, beauty and wellness — where Target began making changes earlier in the year — are experiencing sustained sales growth, executives said on a separate call with analysts. Sales during the ongoing back-to-school season are up nearly 20% as customers respond to new products and strong deals. The company has held or reduced prices of 95% of back-to-school products.
Target acknowledged it has more work to do in the apparel and home categories, where growth was relatively flat in the quarter. The company is planning changes to bedding, kitchen and dining through next year.
Retailers are battling an uneven US economic performance. Consumer sentiment dropped for the first time in three months in August on inflation concerns, and the labor market is showing some signs of weakness and slowing wage growth.
Earnings have also been mixed so far this quarter. Home-improvement retailer Lowe’s Cos., which also reported results on Wednesday, cut its full-year guidance in part due to pressure on discretionary spending. Rival Home Depot Inc. said earlier this week that demand remains steady even as the broader housing market remains stagnant. Walmart is due to release earnings Thursday.
Walmart, Costco and Kroger Co. are also investing to lower grocery prices to win over shoppers fatigued by a sustained rise in prices.
(Updates fourth paragraph with closing share price)
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