Target lowers Q4 profit and sales outlook

Holiday sales were a disappointment

NEW YORK • Target cut its fourth-quarter profit and sales outlook after the discounter wrestled with sluggish holiday traffic in its stores and weak sales in key areas like electronics and food that offset a surging online business.

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 Amazon.com is setting the rules.

Target stepped up its value messages, ramped up its holiday marketing and showcased more exclusive merchandise like a new homegrown children’s clothing brand 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 as they contend with shoppers increasingly buying on their mobile devices.

Target’s shares fell more than three per cent in morning trading and shares of several other major retailers such as Kohl’s Corp. and Macy’s Inc. also fell.

The National Retail Federation, the nation’s largest retail trade group, reported last week that holiday sales for the November and December period rose 4 per cent to about US$658.3 billion. That beat a forecast for a 3.6 per cent boost. But online sales rose 12.6 per cent to US$122.9 billion, topping a forecast for growth of up to 10 per cent. A clearer picture of shoppers’ behaviour will emerge next month when major retailers report their final fourth-quarter figures. Target is expected to release its final fourth-quarter report on Feb. 28.

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

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

“While we were pleased with Black Friday sales, December digital sales growth of more than 40 per cent and continued strength in our Signature categories, these results were offset by early season sales softness and disappointing traffic and sales trends in our stores,” Brian Cornell, chairman and CEO of Target, said in a statement.

For the November and December period, revenue at stores opened at least a year declined by more than three per cent; online sales rose more than 30 per cent.

For the two-month period, revenue at stores opened at least a year at the company’s signature categories such as clothing, home and toys increased nearly three percentage points faster than the company average. Weak spots were electronics and entertainment, where the measure declined by high single digits and food and essentials, both of which saw the figure decline by a low single-digit range.

Target says costs associated with bolstering online services and a highly promotional competitive environment hurt fourth-quarter margins. The company was more aggressive in its pricing — 60 per cent of its marketing message this past holiday season was about value, up from 20 per cent a year ago. Target has also been making online orders and pickups easier for shoppers.