Target's results show struggling shoppers are turning to biggest chains for relief, analyst says

By Bill Peters

'The mass merchants are key destinations for consumers during this period of stress,' UBS analyst says

Over the past two years, retailers have had a tougher time getting inflation-battered shoppers to spend at their stores. But for the biggest chains, some analysts say, that's become less of a problem.

That trend was most recently illustrated by Target Corp.'s (TGT) quarterly earnings report on Wednesday. Executives at the chain described "meaningfully" better demand for clothing and other discretionary categories - areas hit hardest as consumers prioritize basics - as the company raised its full-year profit forecast.

While management painted a picture of a more selective shopper, they also described that customer's behavior as "consistent" and "resilient." Same-store sales during Target's second quarter, including for clothing, were up, as was consumer traffic.

At department-store chain Macy's Inc. (M) and clothing retailer Urban Outfitters Inc. (URBN), the mood this week wasn't as upbeat. Macy's tempered its full-year outlook, while Urban Outfitters plans a makeover of its struggling namesake stores.

"Importantly, [Target] described the consumer environment as consistent," UBS analyst Michael Lasser said in a note on Wednesday. "This is also how Walmart described it. It stands in contrast to what many other retailers have articulated.

"It shows that the mass merchants are key destinations for consumers during this period of stress," he continued. "The consumer can capitalize on compelling values, find new and innovative products, and consolidate trips. We see no reason why this trend should end any time soon."

Lasser also said newer products at Target - such as a recent hair-care launch with Blake Lively, and dozens of new private-label food items set for the fall - could help sales. He added that "newness," a common topic on retailers' earnings calls this year, could help boost Target's same-store sales next year.

After rallying yesterday, Target's stock was down 1.4% on Thursday. But shares were still up 10.3% so far this year.

Elsewhere, analysts at BofA raised their 2025 per-share profit estimates for Target following the company's results. They said the broader economic backdrop was still messy, but they expected better sales trends and said the assortments on Target's shelves "support growth through the important back-to-school/back-to-college season and into the holidays."

Elsewhere, there have been signs that big-box retailers like Walmart Inc. (WMT) and Costco Wholesale Corp. (COST) have taken away business from convenience stores.

Walmart Chief Executive Doug McMillon said on the company's earnings call last week that the retailer continued to pick up market share, including for things that weren't groceries.

"So far, we aren't experiencing a weaker consumer overall," he said.

-Bill Peters

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08-22-24 1413ET

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