Target lowered prices. It paid off

By Nathaniel Meyersohn, CNN

New York (CNN) — Target's sales rose for the first time in a year, ending a long losing streak, the latest sign that U.S. consumers are still willing to spend money in stores — as long as they believe those stores offer good value.

Target's sales at stores open at least a year rose 2% last quarter and profits rose 36%. The company's shares (TGT) rose 13% in premarket trading.

Target benefited from price cutting. To attract customers, the company cut prices on 5,000 frequently purchased items. This strategy worked. Traffic at Target stores increased 3% during the quarter, and customers spent money on unnecessary products such as clothing.

“Consumers are showing resilience as they continue to seek value and focus on essentials while being selective about nonessentials,” said Joseph Feldman, an analyst at Telsey Advisory Group, in a recent note to clients.

Still, Target signaled a cautious outlook for the rest of the year, expecting consumers to be cautious with their spending. Target expects sales to rise as much as 2% this year, but said the figure will likely be less than that.

End a losing streak

Target's sales increase last quarter ends four consecutive quarters of sales declines for the chain.

At the height of the pandemic in 2020, Target's sales and profits soared, and that recovery continued through 2023. But Target has struggled over the past year.

Through Wednesday, Target shares were unchanged year-over-year, lagging the S&P 500.

Target's core middle-class customers are suffering from higher prices and are buying fewer consumer goods such as home accessories, electronics and non-essential clothing, preferring instead to buy groceries and everyday items.

Target has also seen a decline due to its product offerings and higher prices compared to competitors such as Walmart.

The chain carries more non-essential goods compared to rivals like Walmart and Costco. More than half of Target's goods are non-essential goods. Target has added more groceries and essential goods to its stores in recent years, but still lags behind Walmart, which gets about half of its sales from groceries.

In the US, Walmart's sales at stores that have been open for at least a year rose 4.2 percent last quarter.

While consumers spend their money at Walmart and Target, they save elsewhere.

Starbucks and McDonald's are struggling as people reject higher fast-food prices and prefer home-cooked meals. Home Depot and Lowe's also saw sales decline as Americans are tackling fewer major home improvement projects.

This is a developing story and will be updated.

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