Target stock soars 14% as retailer cuts prices on 5,000 products to lure in customers

Target Corporation (NYSE: TGT) surprised the market today with an impressive earnings report, marking its first comparable sales growth in over a year. This strong performance has propelled the stock up by 14%.

What makes Target’s success particularly noteworthy is the timing. At a moment when many retailers are struggling due to cautious consumer spending, Target has managed to outperform expectations.

The company strategically cut prices on 5,000 products in its stores to attract customers, and today’s earnings announcement confirms that this approach was a smart move.

Target earnings highlights

The company reported comparable sales growth of 0.4% in the second quarter. The improvement was a result of several factors, dominated by strengthening the apparel category and improvements in its digital business.

The CEO mentioned initiatives such as the Target Circle loyalty program and the drive-up service as the leading cause of the uptick in earnings. He also mentioned the key role played by the price cuts.

We feel great about the reaction that we’re seeing from the consumer based on the 5,000 items where we’ve seen price reductions. It certainly contributed to traffic growth during the quarter — we expect that to continue over the balance of the year.

Target CEO Brian Cornell

Cornell declined to comment on further price cuts However, if there is any retailer that now has the financial appetite for further cuts, it is indeed Target.

What are the analysts saying about Target

Analysts were quick to praise the exceptional performance. Morgan Stanley’s Simeon Gutman was impressed at how the company executed its strategies well in a challenging environment. Even though he wasn’t entirely impressed with the guidance, the fact that it was still above the estimates was worth appreciating.

Jeffries analyst Corey Tarlowe noted that the comparable sales figure not only beat estimates but also came in at the higher end of guidance. What makes it even more encouraging for investors is that Target seems to be doing well even before consumer spending has turned around. The trends in discretionary spending are encouraging, and Target is well-positioned to benefit from that going forward.

Bank of America analyst Robbie Ohmes touched upon the price cuts, saying people are looking for convenience as well as value. They are not going to dish out money for convenience alone.

Walmart’s second quarter earnings highlighted that value and convenience are resonating with consumers. We believe Target’s heightened focus on value positions it well for [market] share gains going forward.

Robbie Ohmes

Digital initiatives drive up sales

Target’s digital initiatives have also played a key role in driving up the sales in the last quarter.

The company, through its Target Circle program, has invested heavily in online shopping experience. The results are now starting to show.

The drive-up service, which is an initiative for people to order online and pick up their purchases without leaving their vehicles, is also becoming popular among Target’s customers.

Target is now well poised to take advantage of a potentially improving macroeconomic environment, as it seems to have a head start among its peers. It will be interesting to see how well the company can use this advantage in the remainder of the year.