Target Corp posted a surprise rise in holiday-quarter sales on Tuesday, buoyed by an increase in store traffic from discount-hungry Americans, even as it joined other retailers to caution on 2023 earnings due to an uncertain US economy.
Shares rose about 5% in premarket trading as it beat quarterly profit estimates for the first time in a year.
Surging prices over the last year have hurt demand for non-essential products, forcing retailers to slash prices on everything from toys to electronics to clear stocks.
The discounts helped drive a 0.7% increase in customer traffic during Target's fourth quarter, but took a toll on gross profit margins, which fell 3 percentage points.
The big-box retailer forecast full-year earnings of $7.75 to $8.75 per share, below analysts' estimates of $9.23, according to Refinitiv data.
Other retailers including Walmart, and Home Depot have also issued conservative annual forecasts.
Surging Consumer Prices
Surging US consumer prices have raised fears among executives that the US Federal Reserve could further lift borrowing costs, leading to an economic downturn in the second half of the year.
"We're planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment," Target chief executive Brian Cornell said.
The company's comparable sales in the quarter ended in 28 January rose 0.7%, while analysts had expected a 1.5% fall.
Target in November had forecast fourth-quarter comparable sales to fall by about a low single-digit percentage, saying it was a witnessing a 'precipitous decline' in discretionary demand.
Higher markdowns, however, helped the company bring down discretionary inventories by about 13% at the end of the quarter compared to a year ago.
Excluding items, Target earned $1.89 per share in the fourth quarter, beating estimates of $1.40 per share.
The company said it expects full-year comparable sales in a wide range from a low-single digit decline to a low-single digit increase.