Target reports sluggish holiday sales, missing estimates

Target surprised analysts by reporting sluggish holiday sales that missed the chain’s estimates.

Target’s comparable sales inched up 1.4% in the combined November/December period, compared to growth of 5.7% a year ago. Comparable digital sales increased 19% during the holiday shopping season, driven primarily by the company’s same-day fulfillment services (Order Pick Up, Drive Up and Shipt), which together grew more than 50% from the comparable period last year.

In a statement, Target said that “continued strength in multiple core categories such as apparel, beauty and food and beverages was offset by softer-than-expected performance in key holiday categories, including electronics, toys and portions of its home business, which together account for approximately one-third of the company’s holiday season sales.”

“We faced challenges throughout November and December in key seasonal merchandise categories and our holiday sales did not meet our expectations,” stated Target CEO Brian Cornell. “Because these categories account for a much higher portion of sales during the holidays, they have a larger impact on our overall sales growth as compared to the rest of the year.”

(In a separate blog post on Target’s holiday performance, Cornell said that “…we knew this season was going be challenging, it was even more challenging than we expected.”)

By category, Target’s apparel sales were up about 5% in November and December while beauty sales rose 6% and food and beverages increased 3%. Homes sales for the same period were down roughly 1% while electronics and toys were flat. 

Citing “the durability” of Target’s business model,” Cornell said the company is maintaining its guidance for fourth-quarter earnings.

“Given the relative performance of higher-margin versus lower-margin categories, our fourth quarter financial results will benefit from a stronger-than-expected gross margin mix in our holiday sales,” he said. “In addition, our fourth-quarter performance will benefit from productivity improvements in our stores and supply chain, as well as meaningfully lower clearance inventory compared with a year ago.”

Cornell said that Target also remains on track to deliver historically strong full-year results in 2019, including comparable sales growth of more than 3% and record-high EPS reflecting mid-teens growth compared with last year.

Target now expects fourth quarter 2019 comparable sales growth in line with the company’s 1.4% performance during the November/December period, compared with the prior range of 3% to 4%. This would translate to full-year comparable sales growth of more than 3%.

The company is maintaining its fourth quarter and full-year EPS guidance, which anticipates fourth quarter GAAP EPS from continuing operations of $1.55 to $1.75 and Adjusted EPS of $1.54 to $1.74, with full year GAAP EPS from continuing operations of $6.27 to $6.47 and adjusted EPS of $6.25 to $6.45.