Target (TGT) posted a 3.8% jump in comparable sales, well ahead of expectations, and the turnaround is gaining traction. The bar going into the quarter was high after strong first-period numbers. The standout was traffic. Earnings beat and revenue grew, but higher revenue usually just means shoppers paying higher prices. This time the traffic number shows people actually walking into stores, which points to sustainable growth. The merchandise is connecting with shoppers. Membership and advertising both grew over 20%.
Two quarters does not make a trend. Consistent growth needs at least two more quarters to confirm. Target (TGT) looks well set for the holiday season because the merchandise is landing and the consumer wants value, newness, and above all convenience. Shoppers are selective, but a strong omni-channel setup pulls them in. Same-day delivery grew 25%. Home Depot (HD) reported the day before and is spending heavily to deliver within three hours. Consumers want instant results - order online, pick up on the way home after work. Retailers are spending more on technology to meet this, and the ones offering fast delivery are performing the strongest.
The value hunt across income levels
TJX (TJX) reported comps of 4%, matching last year, where 3% already reflects healthy consumer spending. Traffic was strong and shoppers bought more per visit, so the strength is not only about low prices. Consumers like to hunt for value. Inside TJX's numbers, the strength was in homegoods - people still want to invest in their homes.
Lowe's (LOW) and Home Depot (HD) tell the other side. Consumers are pulling back on large discretionary buys tied to housing. The housing market remains frozen and few are buying new homes, so shoppers think twice before big-ticket spending while still spending on smaller home items.
Splitting the consumer by income cohort explains the split behavior. The high-end consumer is running on all cylinders, still shopping Ralph Lauren (RL) for newness. The middle-class consumer still wants high-end designer clothing but for less, so they trade down to TJX (TJX). The real concern is the low-income consumer.
Why Walmart's number matters most
That low-income shopper is Walmart's (WMT) core customer and the one squeezed hardest by macro pressures, which makes tomorrow's Walmart report the key read on consumer health. On its last earnings call, management sounded cautious about the consumer pulling back and about holding everyday low prices. Since 2022, when high inflation set in, six-figure-income shoppers have increasingly moved to Walmart.
Is that higher-income shopper enough to absorb weakness from the lower-income consumer? It has been since 2020. What matters now is whether that holds after Walmart's own warning. Walmart has more power and structure than most to absorb higher prices without hurting margins. If even Walmart is sounding the alarm, it signals that the pullback retailers have warned about for a while may finally be showing up.
The earnings growth caveat
Across the nearly 200 retailers tracked, second-quarter earnings growth over last year hit 67%, the highest rate. That number is inflated by Amazon's (AMZN) heavy weighting in the index. Strip Amazon out and growth drops to 7%. A 7% earnings growth rate in this macro environment is still healthy. Third and fourth-quarter growth is expected in the high single digits to low double digits, with the fourth quarter at the higher end. Tomorrow's Walmart (WMT) number will show whether the second half of the year breaks from this pattern.
