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Get ready, Halloween fans; Louis is back again.
For those who don’t know, Louis is a target. (TGT) An incredibly scary innovation launched by the major retailer last year and received great acclaim.
Related: Analysts Revise Target Stock Price Target Ahead of Earnings
While Oct. 31 may seem like a long way off, “consumer research and our early season sales indicate there is a lot of excitement around this year’s celebrations,” said Target Chairman and CEO Brian Cornell.
“Last year, social media was filled with videos of the 8-foot-tall Halloween pumpkin ghoul, Louis,” he said. He told analysts “So we had to bring him back this season with a lot of new friends, each with their own bold personalities and catchphrases,” he said during the company’s second-quarter earnings call.
Halloween is a big day in the retail industry’s calendar, as it’s the second-largest retail holiday in the United States after Christmas, with consumers spending an average of $108 last year on spooky items.
Cornell noted that comparable sales, or revenue growth from store locations that have been in operation for at least one year, rose 2% in the quarter, the first increase since the fourth quarter of 2022.
“Among our free sales drivers, we are pleased that second quarter growth was driven entirely by traffic, reflecting the combined benefits of multiple guest-focused initiatives we outlined at our financial community meeting in March,” Cornell said.
The discussion turned to consumers, who Cornell said have shown remarkable resilience in the face of multiple challenges over the past several years, “and are still resilient today.”
Target CEO: ‘We’re on the offensive’
“Given the significant headwinds they have faced from inflation over the past few years, consumers continue to focus on value as they work hard to manage their household budgets,” he said.
“While they continue to go out and shop during the holidays and other seasonal events, many are putting off making purchases until the moment they need them,” Cornell added.
Retail sales data from the U.S. Census Bureau showed that consumers continued to increase their spending in July even as economic growth slowed. According to National Retail Federation “The mid-summer boost from back-to-school and college spending, coupled with special deal days offered by retailers, clearly helped,” said chief economist Jack Kleinhenz.
Related: Target posts unexpected retail sales, fights off Walmart
“Even as labor force growth slows, consumer spending remains the backbone of the economy and keeps the expansion on a positive path,” he said in a statement.
“American families continue to deal with a lot of things,” Rick Gomez, who was recently named Target’s chief commercial officer, told analysts.
“Clearly these pressures are weighing on them, and they are looking for a way out of the daily stresses they feel. However, while economic data remains mixed, we are seeing a consumer who is still willing and able to spend,” he said.
“Yes, they are still picky, yes, they are budget-conscious. Yes, they are looking for deals and everyday value,” Gomez added. “But they are also willing to shop when they find the right mix of fashion and novelty at the right price.”
Target, which in May announced it would cut prices on 5,000 popular items, reported second-quarter earnings of $2.57 a share, up 43% from a year ago, while revenue rose 2.7% to $25.45 billion.
The FactSet consensus estimate is that Target will report earnings of $2.18 per share, on total revenue of $25.177 billion and same-store sales rising 1.1%.
“As we look to the future, our team is focused on controlling what we can control,” Cornell said. “We are committed to staying on the offensive while maintaining a cautious outlook overall, which has worked well for us over the past few quarters.”
The company recorded a 10.1% increase since the beginning of the year and 22.7% compared to last year.
After reviewing Target’s results, Bruce Kamich, a technical analyst with 50 years of following the markets at TheStreet Pro, advised traders to “aim very carefully.”
“Buying stocks after a gap opens requires some skill when it comes to risk,” he wrote in his Aug. 21 column. “I would wait a few days of trading before buying, so that one can risk less than the lows of a few days of trading.
Target’s results are ‘strong first step’, analyst says
Analysts revised their price targets for the company following the earnings report.
Analysts Robert Ohms and Molly Baum of Bank of America Securities raised their price target on Target shares to $195 from $190 and maintained a buy rating on the stock.
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“The macroeconomic backdrop remains uncertain and volatile, but we expect recent competitive trends to continue with Target’s improved value proposition and promotional product lineup supporting growth during the important back-to-school/back-to-college season and into the holidays,” analysts said in a research note.
Analysts said they expect positive reimbursement sales and continued gross margin expansion to offset potential risks, including a more subdued or deteriorating sales trend or competition in same-day delivery.
Deutsche Bank analysts raised their price target to $183 per share, up from $165, and gave the Minneapolis-based company a buy rating.
“When announcing our second quarter results, there was concern that TGT would see a slowdown in sales trends amid a volatile and weak consumer backdrop. TGT rebutted this with a modest increase in the second quarter (same-store sales) with flat trends in June and July, which are likely to continue into August,” the company said.
While guidance for the second half was mixed, analysts at Deutsche Bank said, “We believe it is appropriately prudent, and the outlook leaves room for upside, especially as consumers increasingly respond to novelty and price/value in discretionary categories.”
UBS analyst Michael Lasser raised his price target on Target shares to $200 from $185 and maintained a buy rating on the stock.
Lasser said he sees Target’s results as a strong first step in restoring bullish sentiment to the company’s stock.
He added that there was a lot to admire about the offering, notably rapid traffic growth, healthy gross margin gains, accelerating growth in other revenue streams, and the return of share buybacks.
The analyst claimed that Target could build on what it started this quarter, and not only could estimates move higher, but the multiple has a good chance of moving to the higher end of its five-year range.
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