Target Results Show Shoppers Willing to Spend If Price Is Right

(Bloomberg) — Target Corp. ended a string of quarterly sales declines by focusing on cutting prices on essential goods, winning over inflation-hit consumers who are pulling back from other retailers.
The Minneapolis-based company’s comparable sales, a key gauge of retail success, rose for the first time in more than a year in the second quarter. Shoppers returned to Target stores thanks to deals such as $15 bras and $1 pool noodles, as well as price cuts on essentials like milk and bread. 
Results from Target and rival Walmart Inc. show American consumers are willing to spend — but they’re hunting for bargains and prioritizing lower-priced necessities. Shoppers are still holding off on big-ticket items such as designer clothes and appliances at stores like Macy’s Inc. and Home Depot Inc., though, as they wait for interest rates to ebb.
“While the economic data remains mixed, we see a consumer that is still willing and able to spend,” Rick Gomez, chief commercial officer of Target, said on a call with analysts. “Yes, they’re hunting for deals and everyday value. But they’re also willing to shop when they find that right combination of fashion and newness at the right price.”
Target’s comparable sales rose 2% in the quarter, higher than the average estimate of analysts. Comparable sales for discretionary items were slightly negative during the quarter, but apparel and beauty products were among the categories that saw growth. Price cuts also drove sales of basics like groceries.
‘Seeking Value’
The results reinforce that shoppers are still willing to open their wallets in the right circumstances. Walmart, which gets an important part of its revenue from groceries, raised its guidance last week. Chief Financial Officer John David Rainey said shoppers are looking for value. 
Earlier Wednesday, T.J. Maxx owner TJX Cos. lifted its outlook for the year as shoppers flock to the off-price retailer for bargains. “We are convinced that consumers will keep seeking value,” Chief Executive Officer Ernie Herrman told analysts. 
Although retail sales in July defied expectations by rising the most in nearly two years, Americans increasingly used credit cards and debt-fueled purchases as pandemic savings dry up and wage growth loses steam. That’s led to more bargain hunting — and lowered sales expectations for companies selling pricier merchandise.  
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Macy’s downgraded its outlook while missing analysts’ estimates on second-quarter revenue, citing “a more discriminating consumer and heightened promotional environment relative to its prior expectations.” CEO Tony Spring said the company is lowering prices on some more expensive items, such as home goods, but is holding steady on in-demand products to protect profitability. He added, however, that off-price channels including Macy’s outlets have performed well. 
Home-improvement retailers Lowe’s Cos. and Home Depot also cut their outlooks as the housing market remains frozen and consumers wait for lower rates to start renovation projects. Maytag owner Whirlpool Corp. also lowered its guidance last month as weak home sales eroded demand for appliances. 
‘Circle Week’
At Target, executives started a new low-cost store brand and cut prices on about 5,000 staple products. The retailer is also pushing discounts through its loyalty program, including two “Circle Week” sale events so far this year. About two-thirds of transactions during the latest Circle Week in July came from loyalty members.
Despite the improvements, Target is taking a measured approach with its guidance due to uncertainty about the broader economy. The company maintained its view that comparable sales will be flat to up 2% this year, but now expects the result to likely be in the lower half of that range. 
–With assistance from Lily Meier.
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