Get ready, Halloween fanatics; Lewis is coming back.
For those not in the know, Lewis is Target’s (TGT) incredibly creepy creation that the big box retailer unleashed last year to great acclaim.
Related: Analysts revise Target stock price goal before earnings
Target’s chair and CEO Brian Cornell said that while Oct. 31 may seem like a long way off, “our consumer research and early season sales suggest there’s a lot of excitement around this year’s celebrations.”
“Last year, social media was ablaze with videos of our 8-foot-tall Halloween pumpkin ghoul, Lewis,” he told analysts during the company’s second-quarter earnings call. “So we had to bring him back this season along with several new friends, all with their own sassy personalities and catchphrases.”
Halloween is an important day on the retail industry calendar, as it is the second largest commercial holiday in the U.S. after Christmas, with consumers spending about $108 on average last year to get their spooky on.
Cornell noted that comparable sales, or the growth in revenue from store locations that have been operating for at least one year, climbed 2% in the quarter, the first increase since the fourth quarter of 2022.
“Among the drivers of our comp sales, we’re pleased that our second quarter growth was driven entirely by traffic, reflecting the combined benefits of the multiple guest-focused initiatives we outlined in our financial community meeting back in March,” Cornell said.
The discussion turned to consumers, who Cornell said have shown remarkable resilience in the face of multiple challenges over the last several years, “and they remain resilient today.”
Target CEO: ‘We’re staying on offense’
“Given the significant headwinds they faced with inflation over the last few years, consumers continue to focus on value as they work hard to manage their household budgets,” he said.
“And while they continue to turn out and shop around holidays and other seasonal moments, many are delaying purchases until the moment of need,” Cornell added.
Retail sales data released by the U.S. Census Bureau shows consumers continued to increase their spending in July even as the economy’s growth moderates. According to National Retail Federation Chief Economist Jack Kleinhenz, “the midsummer boost from back-to-school and college spending along with special deal days offered by retailers clearly helped.”
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“Even with the growth of the labor force cooling, consumer spending remains the backbone of the economy and is keeping the expansion on a positive path,” he said in a statement.
Rick Gomez, recently named Target’s chief commercial officer, told analysts, “American families continue to deal with a lot.”
“These pressures are clearly weighing on them, and they’re looking for a refuge from the everyday stress that they’re feeling,” he said. “And yet, while the economic data remains mixed, we see a consumer that is still willing and able to spend.”
“Yes, they’re still being choiceful,” Gomez added, “Yes, they’re budget conscious. And 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, which announced in May that it would slash the prices of 5,000 common items, reported second-quarter earnings of $2.57 per share, up 43% from a year ago, while revenue rose 2.7% to $25.45 billion.
The FactSet consensus estimate called for Target to post earnings of $2.18 per share, with revenue totaling $25.177 billion and same-store sales rising 1.1%.
“As we look ahead, our team is focused on controlling what we can control,” Cornell said. “We’re committed to staying on offense while maintaining an overall cautious outlook, a stance that has worked well for us over the last few quarters.”
Target is up 10.1% year-to-date and 22.7% from a year ago.
After reviewing Target’s results, TheStreet Pro’s Bruce Kamich, a technical analyst with 50 years of tracking markets, advised traders to “aim very carefully.”
“Buying a stock after a price gap open needs some finesse when it comes to risk,” he wrote in his Aug. 21 column. “I would wait for a few days of trading to happen before buying, so one can risk below the lows of a few days of trading.
Analyst says Target results ‘powerful first step’
Analysts adjusted their price targets for the company after the earnings report.
Bank of America Securities analysts Robert Ohmes and Molly Baum raised the firm’s price target on Target to $195 from $190 and kept a buy rating on the shares.
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“The macroeconomic backdrop remains uncertain and volatile, but we expect a continuation of recent comp trends as Target’s improving value proposition and merchandising assortment support growth through the important back-to-school/back-to-college season and into the Holidays,” the analysts said in a research note.
The analysts said they expect positive comp sales and continued gross margin expansion to more than offset potential risks, including a more muted or worsening comp sales trend or competition in same-day delivery.
Deutsche Bank analysts boosted their price target to $183 per share, up from $165, and gave the Minneapolis-based company’s stock a buy rating.
“Coming into 2Q results, there was concern that TGT saw decelerating sales trends amid a choppy and weakening consumer backdrop,” the firm said. “TGT refuted this with modest upside to 2Q (same-store sales) with steady trends in June and July, which likely continued into August.”
While the second-half guidance was mixed, Deutsche Bank analysts said that “we think it is appropriately prudent, and the outlook leaves room for upside, particularly as consumers are increasingly responding to newness and price/value in discretionary categories.”
UBS analyst Michael Lasser raised the firm’s price target on Target to $200 from $185 and kept a buy rating on the shares.
Lasser said that he sees Target’s results as an initial but powerful first step in restoring the upside case on the company’s stock.
He added that there was much more to like than not to like from the release, highlighted by brisk traffic growth, healthy gross margin gains, accelerating other income growth, and the return of share buybacks.
Target could build on what this quarter began, and not only could estimates move higher, but the multiple has a good chance to move to the higher end of its 5-year range, the analyst argued.
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