Target Corp.’s (TGT) shares jumped 5.2 percent in premarket trade after the retail giant announced that it is expecting an increase in sales for fiscal second quarter despite analyst consensus of a decline of 1.2 percent.
Stocks closed higher on Thursday, July 13, with the Dow Jones Industrial Average rising 20.95 points and closing at a record 21,553.09, as Target’s upbeat forecast inspires a rally in the retail sector.
Target stock closed at $53.31 per share on Thursday, up 4.8 percent. Its expected “modest” increase in second-quarter same-store sales raised hopes that other retail stores may also be experiencing the same highs. Brick-and-mortar retail stocks suffered in June when Amazon.com (AMZN) bought Whole Foods Market Inc (WFM.O), and this move could potentially topple the retail market.
Target also said it is expecting second-quarter earnings to come in above its forecast range to $1.15 from 95 cents.
“Target’s recent progress reinforces our confidence and commitment to our strategy as we build an even better Target for tomorrow,” Brian Cornell, CEO of Target, said. “Following better-than-expected results in the first quarter, we’ve seen additional, broad-based improvement in traffic and category sales trends in the second quarter, despite continued challenges in the competitive environment.”
As Target rose, other retailers followed suit. Macy’s Inc. (M), Nordstrom Inc. (JWN), Kohl’s Corp. (KSS) and Gap Inc. (GPS) all closed higher, while S&P Retail SPDR ETF gained 2.4 percent, posting its best trading day so far this year.
J.C. Penney (JCP) was also up 7.8 percent, while the company’s stock is down over 40 percent year to date. The company also announced that it will open toy shops in all of its brick-and-mortar stores in the attempt to expand its merchandise. The toyshops will include a wide selection of toys like dolls, race cars, action figures, board games and arts and crafts set. It will be placed near J.C. Penney’s Disney Collection.
Grocery chain Kroger was up 0.5 percent, while its stock is down 33 percent year to date.
Wal-Mart (WMT), a fierce competitor of Target, led the Dow and rose 1.5 percent, but the company’s stock has been higher unlike other retailers. It is now poised to compete against Amazon after acquiring Jet.com.
Amazon, however, closed lower with a 0.7 percent decline. But its stock is up 33 percent year-to-date.
Quo Vadis Capital analyst John Zolidis said that Target’s return to positive comparative sales is a good sign. “At a minimum, [the forecast] indicates that traditional retailers are not following a straight line directly to irrelevance,” he said.
However, Zolidis noted that the company should make sustained improvements in order to convince the market that it is moving forward.
The stock has dropped 29.6 percent year to date through Wednesday. In February, the company promised aggressive promotions during an investors’ meeting, setting its sights on new brands and investments in technology and small stores as these will help them regain market share, Reuters reports.
According to Anand Raghuraman, principal and retail consultant at EY, retail shares are still expected to be volatile despite Target’s positive sales forecast. “It’s safe to say that investors are looking for any sign of positive news in this time of turbulence,” he said. “There haven’t been many retailers that have escaped the effects of e-commerce and other emerging consumer trends recently.”
Retailers have been aggressively competing to lower their prices in attempts to attract more shoppers as they switch to online shops because of bigger discounts and the convenience they offer.
Charles Grom, Gordon Haskett analyst, also added that the retail giant’s previous same-store sales guidance was just too conservative. He said that other retailers like Costco, Dollar Tree and Wal-Mart were still better value.
Target will report its second-quarter earnings on Aug. 16.