Target lowers 4Q profit and sales outlook

Anne D'Innocenzio
Associated Press

New York — Target cut its fourth-quarter profit and sales outlook after the discounter says it had sluggish holiday sales and traffic in its stores that offset a surging online business.

Its shares fell nearly 4 percent in premarket trading and shares of several other major retailers such as Kohl’s and Macy’s also fell.

The disappointing holiday season is a setback for Target, which like many other retailers is trying to reinvent itself to be more nimble in a changing landscape where online leader is setting the rules.

Target stepped up its value messages, ramped up its holiday marketing and showcased new homegrown brands like a children’s clothing line called Cat & Jack. Apparently, it wasn’t enough to draw shoppers to its stores, and that underscores the challenges for the industry. A string of retailers including Kohl’s and Macy’s recently lowered their outlooks after weak holiday sales despite their aggressive marketing and merchandising efforts.

Target said on Wednesday that revenue at stores opened at least a year were down 1.3 percent for the November and December period. The company, based in Minneapolis, now says the key barometer for a retailer’s health will decline 1 percent to 1.5 percent in the quarter, compared to guidance of down 1 percent to up 1 percent.

For the November and December period, total sales dropped 4.9 percent, reflecting the impact of the December 2015 sales of Target’s pharmacy and clinic business.

In a statement, Target CEO Brian Cornell said that while he was pleased with Black Friday sales, online sales growth of more 40 percent and continued strength in key “signature” categories like clothing and home, the results were offset by early season weakness and disappointing traffic sales trends in the stores.

The company said the weak spots were electronics and entertainment, where the key sales measure declined in the high single digit range and food and essentials, both of which saw the figure decline in the low single-digit range.

Target says costs associated with shifting its efforts to online services and a highly promotional competitive environment hurt fourth-quarter margins.

Target now expects adjusted earnings per share to be $1.45 to $1.55, compared with an earlier guidance of $1.55 to $1.75. Analysts were expecting $1.65 per share, according to FactSet. For the full year, the company expects earnings per share to be in the range of $5.00 to $5.10, compared to guidance of $5.10 to $5.30. Analysts were expecting $5.20 per share.

Target plans to release final fourth-quarter result on Feb. 28.