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Target cuts profit, sales outlook after bumpy holiday season

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

The holiday season was disappointing for Target and several other retailers trying to be more nimble in a changing landscape where online leader sets the rules. Macy’s, Sears and others have announced store closings and layoffs.

Target said revenue in its signature categories –clothes, home, wellness and toys — increased in November and December. But electronics and entertainment were a weak spot, as well as food and essentials. Target has been struggling to find the right assortment of groceries to bring shoppers back in more often.

The Minneapolis-based discounter said the costs associated with bolstering its online services and price competition for shoppers conditioned to look for deals hurt fourth-quarter margins.

“While we were pleased with Black Friday sales, December digital sales growth of more than 40 percent 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,” CEO Brian Cornell said in a statement.

Target had stepped up its emphasis on value, increased its holiday marketing and showcased more exclusive merchandise like the children’s clothing brand Cat & Jack. It also added 1,800 new or exclusive toys. That didn’t lure enough shoppers to the stores, and that underscores the challenges for the industry.

Moody’s lead retail analyst Charlie O’Shea said Target and other stores are moving to merge their online businesses with their physical stores, but it will be years before they can do it efficiently.

“We are in a secular shift,” he said. “And nobody has built a representative second channel.”

A string of retailers including Kohl’s and Macy’s have lowered their outlooks after weak holiday sales as shoppers increasingly buy on their mobile devices. Toys R Us also cited the heavy promotional environment as the toy chain said revenue at stores open at least a year fell 3.4 percent for the nine weeks that ended Dec. 31. That includes a 2.5 percent drop in the U.S.

A clearer picture of shoppers’ holiday behavior will emerge next month when major retailers report their final fourth-quarter figures. Target releases its quarterly results on Feb. 28.

Target’s shares dropped more than 5 percent in midday trading to $67.26. Shares of other retailers fell as well, and Macy’s Inc. lost nearly 3 percent to $29.06.

The National Retail Federation, the nation’s largest retail trade group, had said last week that sales for November and December rose 4 percent to about $658.3 billion, better than the 3.6 percent forecast. Online sales rose 12.6 percent to $122.9 billion, outpacing a forecast for growth of up to 10 percent.

Target said Wednesday that sales at stores opened at least a year fell 1.3 percent for November and December. That number includes online sales. The company now says the key sales barometer will decline 1 percent to 1.5 percent in the quarter, compared to previous expectations for a drop of 1 percent to a gain of 1 percent.

Total sales for the two months dropped 4.9 percent, which Target said was still reflecting the impact of the sale of its pharmacy and clinic business in December 2015.

For the November and December period, comparable sales just at its physical stores declined by more than 3 percent; online sales rose more than 30 percent. Overall transactions were unchanged compared to a year ago as online transaction growth was more than 30 percent, while store transactions fell 1.7 percent. Store transactions are a key barometer for customer traffic.

If the business trends continue through January, the fourth-quarter will be Target’s third straight period of traffic declines.

Target now expects adjusted earnings per share for the fourth quarter 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, it expects earnings per share of $5.00 to $5.10, compared to guidance of $5.10 to $5.30. Analysts were expecting $5.20 per share.


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