Target (TGT) has joined the chorus of retailers reeling from a bad holiday season.
The discount retailer on Wednesday lowered its profit forecast for the year after reporting comparable sales fell 1.3% in November and December, as big gains in its online business were dwarfed by stiff price competition and growing difficulty in getting shoppers into stores.
Target shares were down 4% in premarket trading to $68, continuing a long slide since April when they hit a 52-week high.
The hundreds of millions of dollars Target has been pouring into its e-commerce to help it self-cannibalize its sales rather than lose business to Amazon.com (AMZN) and a resurgent Walmart.com (WMT) among others took a big toll on its bottom line.
“The costs associated with the accelerated mix shift between our stores and digital channels and a highly promotional competitive environment had a negative impact on our fourth quarter margins and earnings per share,” Target CEO Brian Cornell said in a statement.
Over the holiday season, online sales rose 30%, a re-acceleration in Target’s digital business helped by its greater use of stores to ship orders and serve as pick up spots. But it’s also clear that Target’s success online came at the expense of what Cornell called “disappointing traffic and sales trends in our stores.” Target only gets about 5% of its revenues digitally.
It was also clear that Target’s bet on electronics hasn’t paid off: comparable sales in that category, where it also goes against the likes of Best Buy (BBY), fell 9%.
Of course, electronics are the cornerstone of promotional events like Black Friday but just as was the case with department store chains Kohl’s (KSS), Macy’s (M), and J.C. Penney (JCP), which all reported strong Black Friday business too but weak overall Christmas sales, Target shoppers held back outside of that period.
Heading into the key holiday season, Target was dealing with departures of its marketing chief, digital chief and its chief merchant, Mark Tritton, was overseeing his first holiday season. But the company was also contending with other challenges: the takeover of its pharmacy business by CVS Health (CVS) last year has not gone smoothly and the retailer’s grocery strategy is confused, two ongoing problems that have hit store traffic.
But at least business thrived in areas Target has made priorities such as kids clothing, stylish home goods and clothes, and wellness products.
Still, the poor holiday season, which puts the company on track for a third straight quarterly comparable sales decline, means Target now expects fourth-quarter comparable sales to decline between 1% and 1.5%, compared with prior guidance of between down 1% and up 1%. Adjusted earnings are expected between $1.45 and $1.55 a share, compared with a prior outlook of $1.55 to $1.75 per share.
