Target’s profit boost on fewer discounts lifts shares, outweighs forecast cuts

By Ananya Mariam Rajesh

(Reuters) -Target lowered its full-year sales and profit expectations even as its quarterly profit exceeded Wall Street estimates on Wednesday, benefiting from fewer discounts and better stocked store shelves.

Shares of the big box retailer, which have fallen nearly 16% this year, surged about 8% in premarket trading as second-quarter inventory dropped and the company held back on steep discounts.

Target, which largely sells non-essential items like electronics and home decor, has been trying to balance its merchandise by adding more daily-use products as consumers limit their spending to necessary items amid rising prices.

Inventory fell 17% in the second quarter, with a 25% drop in discretionary items in its stock, Target said.

“We are seeing food and beverage and household essentials absorbing a larger portion of the US consumers wallet,” Target CEO Brian Cornell said.

“Guests are out at concerts, they are going to movies … they are enjoying those experiential moments and are shopping very carefully for discretionary goods.”

As a result, the retailer’s quarterly revenue dropped 5% and it missed expectations.

Sales also took a hit from the backlash against “adjustments” to its Pride merchandise, company executives said while promising to be careful with its partnerships while celebrating heritage moments.

“As we navigate an ever-changing operating and social environment, we are applying what we learned,” Cornell said.

Target now expects annual comparable sales to decline in the mid-single digit range compared to its prior forecast of low-single digit decline to a low-single digit increase.

It expects 2023 adjusted profit per share between $7 to $8, compared with the prior range of $7.75 to $8.75.

“(Results are) kind of a mixed bag … I think people were expecting probably a much worse second quarter,” Telsey Advisory Group analyst Joseph Feldman said.

On an adjusted basis, Target earned $1.80 per share in the quarter ended July 29, beating expectations of $1.39.

Bigger rival Walmart (NYSE:) is set to report earnings on Thursday.