Target (NYSE:TGT) has increased its annual sales forecast for a second consecutive quarter, offering further signs that the retailer’s turnaround strategy under new CEO Michael Fiddelke may be beginning to deliver results.
Excluding the impact of a tariff refund, Target now expects full-year earnings per share to be $0.75 higher at the midpoint than its previous forecast. The company had previously anticipated earnings near the upper end of its $7.50 to $8.50 range.
Target also raised its sales expectations, forecasting year-on-year net sales growth of approximately 5%, compared with its earlier projection of around 4%.
Speaking during a pre-earnings conference call cited by Reuters, Fiddelke, who became Target’s CEO in February, said customers had shown a “strong response” to the retailer’s efforts to refresh its merchandise assortment and reduce prices. However, he cautioned that “there’s a lot more to come” and said the company would still need to “execute well.”
Comparable sales for the quarter ending in August increased 3.8%, exceeding market expectations. Target has cut prices on more than 10,000 products in an effort to attract shoppers, with many of the reductions focused on educational supplies ahead of the back-to-school shopping season.
Fiddelke’s turnaround strategy has also included improving product availability across stores, particularly in important categories such as health and wellness and baby products, as the retailer seeks to appeal to more young families.
Investors are closely watching Target’s ability to sustain its sales momentum as economic uncertainty encourages some U.S. households to become more cautious about spending. Another key question is whether the retailer can continue lowering prices without putting excessive pressure on profitability.
Average transaction size increased 0.2% during the second quarter, missing expectations for a 0.9% rise. Gross margin improved to 33.7% from 29% in the first quarter, although a significant portion of that increase reflected a $1 billion tariff refund.
Target shares fell more than 2% in Wednesday premarket trading despite having gained more than 51% since the beginning of the year.
“[T]his is a solid beat-and-raise report even excluding the (large) benefit from tariff refunds and it shows that management around initiatives are bearing fruit. That said, expectations for this Target print were elevated (which means investors might not be too impressed by the upside),” analysts at Vital Knowledge said in a note.
Target stock price
