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Target Posts Soft Holiday Sales, Trims Comparable Sales View

Zacks Equity Research

The holiday season did not turn out to be a blissful one for Target Corporation TGT with sales coming in below expectations. The disappointing performance compelled this Minneapolis, MN-based company to trim fourth-quarter fiscal 2019 comparable sales growth forecast. The company informed that its key seasonal merchandise categories witnessed challenges throughout November and December period.

Certainly, it was hard for investors to digest lower-than-expected holiday sales, given Target’s strong performance in the past. Evidently, shares of this general merchandise retailer fell roughly 6.6% during the trading session on Jan 15.

Sales at Toys & Electronics Disappoint

Comparable sales in the combined November/December period increased 1.4%. This shows a sharp deceleration from growth rate of 5.7% registered in the year-ago period. Notably, comparable digital sales rose 19% during the festive period buoyed by same-day fulfillment services. Clearly, the figure does not look as outstanding when compared with 29% growth witnessed during the 2018 holiday season and 31% increase reported in the third quarter of fiscal 2019.

Management said that softer-than-expected performance across Electronics, Toys and portions of Home assortment hurt the company’s overall holiday sales. Together these categories account for roughly one-third of the season’s sales. We note that comparable sales were down more than 6% at Electronics and by 1% at Home category. Toy sales were flat compared with the prior-year period.

Nonetheless, Target continued to gain market share across its core merchandise categories, namely Apparel, Essentials & Beauty and Food & Beverage with comparable sales increasing 5%, 6% and 3%, respectively, during the holiday season.



Soft Sales Hurt Outlook

It is evident from above that Target did not receive an overwhelming response for its wider assortment of toys. Also, slower comparable digital sales and six fewer days between Thanksgiving and Christmas took away some sheen. Consequently, management lowered fourth-quarter comparable sales view.

Target now envisions comparable sales to rise in line with its November/December performance of 1.4% in the fourth quarter and more than 3% in fiscal 2019. Management had earlier projected comparable sales growth of 3-4% for the final quarter.

Nonetheless, the company reaffirmed its fourth-quarter earnings per share estimate. It said “because of the durability of our business model, we are maintaining our guidance for our fourth quarter earnings per share.”

Wrapping Up

In spite of softer-than-expected sales during the busiest part of the year, Target still holds promise. The company has been making multiple changes to its business model to adapt and stay relevant in the ever-evolving retail landscape. It has been deploying resources to enhance omni-channel capabilities, coming up with new brands, remodeling or refurbishing stores, and expanding same-day delivery options to take on rivals. These steps have improved prospects in a big way.

This Zacks Rank #2 (Buy) stock has soared 68.6% in a year, outperforming the industry and the S&P 500’s rally of 39.2% and 23.6%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3 More Retailers’ Holiday Sales Reports

Macy’s M comparable sales on an owned plus licensed basis decreased 0.6% during November and December period combined, while on an owned basis, comparable sales fell 0.7%.

L Brands LB witnessed comparable sales decline of 3% for the nine weeks ended Jan 4, 2020.

J. C. Penney JCP reported comparable store sales decline of 7.5% for the combined nine-week period ending Jan 4, 2020.

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L Brands, Inc. (LB) : Free Stock Analysis Report
 
Target Corporation (TGT) : Free Stock Analysis Report
 
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J. C. Penney Company, Inc. (JCP) : Free Stock Analysis Report
 
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