A Jefferies analyst sees Target 'prioritizing the health of the franchise over short-term profit optimization'

Shares of Target are up around 60% so far this year. The company on Tuesday said it was lowering prices for nearly 2,000 items.

Wall Street normally hates price cuts, but some analysts didn't mind the ones announced by Target on Tuesday.

The big-box chain (TGT) said it was lowering prices on nearly 2,000 items, mainly clothing, accessories and home goods. The move comes as Target tries to draw discount-focused families ahead of the holidays.

Discounting tends to make analysts squeamish, as it is often a sign of weaker demand. But Elizabeth Lafontaine, director of research at Placer.ai, a firm that monitors retail foot traffic, said Target's announcement seems intended to build on newfound momentum.

Lafontaine noted that visits to Target had increased every month this year, reflecting the company's push to bring more relevant styles to shelves at lower prices. In the second quarter, those visits were up 4.8%, outpacing the 0.7% gain for Walmart (WMT).

"Retailers use price cuts for many reasons, but Target's year-to-date traffic performance suggests the brand is doubling down on initiatives that are working, including price cuts taken earlier this year," she told MarketWatch over email.

Jefferies analyst Corey Tarlowe, in a research note Tuesday, said the price cuts are evidence that the chain is "making the right decisions" for customers and the longer-term health of the business. Lower prices have been working, he said, adding that new products and refreshed styles and displays - part of Target's plans to revive sales - are the right formula to regain relevance.

"Most importantly, this announcement increases our confidence that management is prioritizing the health of the franchise over short-term profit optimization," Tarlowe said.

However, Morningstar analyst Brett Husslein noted that the current improvements in traffic and sales were coming off of weaker results last year. He also took notice of the items being put on sale - from clothing to shoes, to home goods like bedding.

"These happen to be the categories where they've also been seeing a whole lot of market-share loss over the past few years as well," Husslein told MarketWatch.

Investors appeared share that skepticism: Target's stock finished around 1.3% lower on Tuesday, at $156.43 a share. The stock is up around 60% so far this year, but well off highs hit in 2021.

Higher costs of living over the past several years have sent shoppers on an extended bargain hunt. In the process, retailers like Walmart have made gains at Target's expense. In response, Target has tried to roll out new beauty products and snacks, and it's set out to become a bigger destination for things like collectibles.

The discounts from Target come as shoppers start to turn their attention to holiday shopping, which has increasingly been defined by big discount events held by the largest retailers through the fall. Customers have relied on those discounts to make the holidays work for their finances, given higher prices for essentials like food and gasoline.

Adobe (ADBE) on Monday said it expects U.S. online sales to reach $275.1 billion over the holiday season, which it defined as the period from Nov. 1 to Dec. 31. That would make for a 6.7% increase relative to a year before. The company also said that consumers were "expected to take advantage of strong discounts to stock up on essentials."

-Bill Peters