Target lowers 4Q profit and sales outlook

AP News
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Posted: Jan 18, 2017 10:27 AM
Target lowers 4Q profit and sales outlook

NEW YORK (AP) — 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 3 percent 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 percent to about $658.3 billion. That beat a forecast for a 3.6 percent boost. But online sales rose 12.6 percent to $122.9 billion, topping a forecast for growth of up to 10 percent. A clearer picture of shoppers' behavior 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 were down 1.3 percent for the November and December period. The company, based in Minneapolis, now says the key barometer for a retailer's health will decline 1 percent to 1.5 percent in the quarter, compared to guidance of down 1 percent to up 1 percent.

For the November and December period, total sales dropped 4.9 percent, 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 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," 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 3 percent; online sales rose more than 30 percent.

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 3 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 percent of its marketing message this past holiday season was about value, up from 20 percent a year ago. Target has also been making online orders and pickups easier for shoppers.

Target now expects adjusted earnings per share 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, the company expects earnings per share to be in the range of $5.00 to $5.10, compared to guidance of $5.10 to $5.30. Analysts were expecting $5.20 per share.

Shares of Target Corp. fell $3.41, or 4.8 percent, to $67.53 in morning trading. Shares of Kohl's Corp. Shares fell $1.32, or 3.2 percent, to $40.06 and Macy's Inc. lost 91 cents, or 3 percent, to $29.99.

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