(Bloomberg) – The Target Corp. fell after lowering its quarterly sales prospects after a holiday season that failed to meet its own expectations and provided a warning for the retail sector as a whole, which is facing tougher times.
Comparable sales – an important barometer for retail performance – only increased by 1.4% from November to December, well below the previous year’s growth of 5.7%. The cheap-chic retailer said sluggish growth was most pronounced in toys and electronics, which account for a larger share of the company’s business during the holidays and suffer from the lack of must-have items. A calendar shift with fewer days between Thanksgiving and Christmas also contributed to the softness.
“Some consumers have chosen to keep their vacation budget rather than bargains,” said Neil Saunders, general manager of GlobalData Retail, in a note. “In addition, the electronics technology palette has been anything but inspiring this season – something that is largely beyond Target’s control – but still impacted sales.”
In premarket trading, the shares even fell by 9.7% on Wednesday.
The lackluster report follows similarly weak results from department stores like J.C. Penney Co. and Kohl’s Corp., but Target’s decline is more worrying as it has been one of the top performers in the industry for the past two years. The stock almost doubled in 2019, as analysts’ expectations were repeatedly exceeded and the forecast for the year as a whole was raised twice. The holiday defeat also raises doubts about two other bluebells, Walmart Inc. and Best Buy Co., which will report holiday results next month.
The period was a “grave failure,” according to Target’s Chief Executive Officer Brian Cornell. “Although we knew this season was going to be a challenge, it was even more challenging than we expected.”
Target made a big bet on the holiday season by opening more than two dozen mini-Disney stores in some of its locations and processing the sales made on the newly launched Toys “R” Us website. It didn’t pay off. Comparable toy sales remained unchanged, with a series of positive sales that continued for about five years. Sales of electronic products fell more than 6% as the lack of new and inspiring devices depressed consumer demand, while sales of home decorations also declined.
“There was a remarkable weakness in electronics and parts of the house,” said Cornell in a blog post that accompanied the results. “After two strong Christmas holidays with toys, our growth was essentially flat.”
Saunders tweeted that Target “missed the mark” by not starting some vacation deals early enough, creating opportunities for rivals. According to the data tracker Placer.ai, Target’s traffic decreased by around 1% in the months of November to December compared to the previous year.
Target’s results were also reflected in the holiday results released by data tracker NPD Group on Tuesday. He noted that sales of key gift categories between November 3rd and December 28th were only up 0.2% year over year.
The broader trend could also hurt Walmart, the country’s largest retail company, whose Christmas sales “seemed a little weaker” than expected, Cleveland Research analysts said last week. Walmart shares even fell 2.4% in premarket trading, while electronics retailer Best Buy dropped 4.9%.
The goal now is to achieve comparable sales in the fourth quarter, which corresponds to his holiday result of 1.4%. This corresponds to the average forecast of 3.8% of the analysts determined by Consensus Metrix. On a positive note, the company maintained its earnings guidance for the quarter and margins should benefit from selling more profitable items, such as apparel, in which Target took market share from competitors. Apparel sales increased by approximately 5% during the holidays, while beauty articles sales increased by 7%.
What Bloomberg Intelligence says:
“We believe that the goal may need to change the strategy to regain momentum in 2020, given the competitive environment and increasingly difficult comparisons between stores compared to the previous year. Long-term sustainable growth may be more difficult to achieve in a challenging retail environment. “
Jennifer Bartashus, retail analyst
Click here to read the research
The goal is to achieve a full fourth quarter result in early March.
Web revenue grew 19%, slower than online performance last year. For the first time in some time, growth was below 20%. The company has invested heavily in improving its logistics and introduced various ways in which customers can receive e-commerce orders, from roadside pickup to same day delivery. However, the poor results show that the problem continues for many retailers in the retail store.
Target also appointed Mark Schindele as chief stores officer and replaced retired Janna Potts. As a 20-year veteran of the company, Schindele was most recently Senior Vice President for Real Estate, where he led Target’s remodeling and small format projects.
(Updates with analyst comment in the third paragraph)
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