July 13, 2017 / 10:52 AM / 2 months ago

Target's upbeat forecast drives retail stocks higher

(Reuters) - Target Corp (TGT.N) forecast sales to increase for the first time in five quarters, thanks to improved customer traffic and sales trends, sending its shares up as much as 4.4 percent and pushing retail stocks higher.

Target’s forecast comes days after rival J.C. Penney Co Inc (JCP.N) said it was expecting second-quarter sales to significantly improve from the first quarter, pointing to improving demand for bricks-and-mortar retailers.

Retailers have been competing fiercely to cut prices in hopes of revitalizing their business as more shoppers switch from traditional stores to online shopping for bigger discounts and convenience.

Target and bigger rival Wal-Mart Stores Inc (WMT.N) have stepped up their game by investing heavily in e-commerce and offering services such as pick-up-in-store and curbside delivery.

Target’s forecast of a “modest” increase in second-quarter same-store sales on Thursday boosted brick-and-mortar retail stocks, which took a beating last month when Amazon.com Inc (AMZN.O) agreed to buy upmarket grocer Whole Foods Market Inc WFM.O in a deal that could potentially upend the retail market.

Macy’s Inc’s (M.N) and Kohl’s Corp’s (KSS.N) shares were up about 4 percent, while Wal-Mart’s were up 1.4 percent. Discount retailer Dollar Tree Inc’s (DLTR.O) shares rose 1.3 percent and Costco Wholesale Corp’s stock (COST.O) was up 1 percent.

Target also said it expects second-quarter profit to come in above its forecast range of $0.95 per share to $1.15 per share.

A newly constructed Target store is shown in San Diego, California, U.S. May 17, 2016. REUTERS/Mike Blake/File Photo

“At a minimum, (Target’s forecast) indicates that traditional retailers are not following a straight line directly to irrelevance,” Quo Vadis Capital analyst John Zolidis said, calling Target’s return to positive comparative sales “clearly a good sign.”

Zolidis added, however, that it would still take sustained improvement to convince the market that Target had found a “true path forward.”

Target’s stock has fallen about 30 percent since the start of the year, dropping to levels last seen in early 2012 due in part to what some analysts consider a confusing grocery offering and an inability to engage customers.

Empty shopping carts sit inside prior to the Black Friday sale event on Thanksgiving Day at Target in Chicago, Illinois, U.S., November 24, 2016. REUTERS/Kamil Krzaczynski

In February, the retailer vowed aggressive promotions at a meeting with investors, saying new brands and investments in technology and small stores would help it eventually win back market share.

Anand Raghuraman, principal and retail consultant at EY, said he expected volatility in retail to continue despite these optimistic second-quarter sales forecasts.

“It’s safe to say that investors are looking for any sign of positive news in this time of turbulence. There haven’t been many retailers that have escaped the effects of e-commerce and other emerging consumer trends recently,” Raghuraman said.

Gordon Haskett analyst Charles Grom said Target’s previous same store sales guidance might have simply been conservative, adding that other retailers, such as Wal-Mart, Costco and Dollar Tree, were still better value.

Target, which had previously forecast a low single-digit decline in comparable sales, is expected to report second-quarter results on Aug. 16.

Reporting by Sruthi Ramakrishnan in Bengaluru and Richa Naidu in Chicago, additional reporting by Siddharth Cavale; Editing by Sayantani Ghosh and Phil Berlowitz

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