Holiday Sales Sap Target -- WSJ

Retailer among those warning of profit drop amid slow store traffic and online competition

By Khadeeja Safdar 

Target Corp. warned of weak profits and sales during the critical holiday period, the latest retail chain to acknowledge its struggle to attract shoppers to its stores and compete with online sellers such as Amazon.com Inc.

Sales at Target stores open at least a year fell 3% during November and December. The company said online revenue jumped more than 30%, but still accounted for just a fraction of its total business, so overall comparable sales are expected to fall for the quarter.

Digital gains were offset by "disappointing traffic and sales trends in our stores," and web discounting ate away at the company's profit margins, Chief Executive Brian Cornell said on Wednesday.

Target's warning follows a string of announcements by fellow brick-and-mortar retailers this month, such as Macy's Inc., Barnes & Noble Inc., J.C. Penney Co. and Kohl's Corp., citing lackluster holiday sales.

Some companies, including Sears Holdings Corp. and Limited Stores LLC, have said they would close stores because of weak sales. On Tuesday, Toys "R" Us Inc. also posted a disappointing quarter, with same-store sales down 2.5% in the U.S. for November and December.

Target's stock fell about 6%, closing at $66.85 on Wednesday.

Mr. Cornell has been doubling down on physical stores as the chain searches for an e-commerce strategy to compete with rivals such as Amazon and Wal-Mart Stores Inc. The company has been opening smaller stores in urban areas and college towns to attract younger shoppers who increasingly are shopping online.

At a National Retail Federation event this week, Chief Digital Officer Michael McNamara said he expected about 80% of business to continue to take place in Target's stores. He also emphasized using stores as fulfillment centers for online orders, which he said provides a cost and lead-time advantage over Amazon.

Analysts say Target's problems run deeper than weak holiday results. The chain's store strategy wasn't enough to overcome encroachment from other online retailers, Buckingham Research Group analyst John Zolidis wrote in a research note Wednesday. He maintained the firm's "buy" rating but cut its price target to $77 from $85, saying "we are taking a much more conservative view on future results."

In another note issued after the profit warning, Citi cited Target's "difficulty" forecasting sales growth, saying "this will cause increasing skepticism around both positive and negative outlooks from management."

Mr. Cornell has been trying to reshape Target by fixing up stores and improving its merchandise selection. The company made investments to improve its in-store pickup area ahead of the holiday season. The service was meant to lure last-minute shoppers and help save money from delivery costs.

Target has also taken several steps to improve its grocery business, such as adding organic items and investing in store design. In recent months, the chain has been highlighting lower prices to make it a more attractive destination for household essentials.

Despite those efforts, comparable sales fell in the low single digit range in the food and essentials category during the holiday period. For electronics and entertainment products, that metric declined in the high single digit range.

Overall, the company said comparable-store sales, which includes its web business, are expected to fall as much as 1.5% in the fiscal fourth quarter. Target had projected it could decline as much as 1% or rise as much as 1% from a year ago.

The company lowered its profit targets for the fourth quarter, which it expects to report on Feb. 28. Adjusted earnings are expected between $1.45 and $1.55 a share, compared with prior guidance of $1.55 to $1.75 a share.

Paul Ziobro and Anne Steele contributed to this article.

Write to Khadeeja Safdar at [e-mail]

(END) Dow Jones Newswires

January 19, 2017 02:47 ET (07:47 GMT)

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