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Target's disappointing holiday season reveals one big challenge for 2020

Brian Sozzi
Editor-at-Large

With success often comes higher expectations.

That looks to be a lesson Target (TGT) — and its upbeat investors — will be consistently reminded of in 2020 after a blistering 2019 campaign that saw blowout sales and earnings seemingly every quarter. Target said Wednesday its holiday season same-store sales gained 1.4%, slowing from a 5.7% growth rate a year ago. The company had been looking for a fourth quarter same-store sales increase of 3% to 4% — the performance in the November/December period suggests Target will miss that mark.

Target’s fourth quarter ends in January consistent with other retailers.

The company highlighted sales weakness in toys (surprising given its investment in expanded toy selections) and electronics. Considering there wasn’t any must-have toy or gadget this past holiday season, it’s not a total shock to see the sales softness. Target also noted partial weakness in its key home goods department.

Online sales improved 19% from a year ago.

The company reiterated its adjusted earnings per share guidance of $1.54 to $1.74. Despite the sales miss, Target pointed to sales strength in higher margin products and supply efficiencies for its ability to maintain profit guidance.

Target’s stock fell 7% in pre-market trading.

By its own admission, the holiday season was a surprise letdown.

“We faced challenges throughout November and December in key seasonal merchandise categories and our holiday sales did not meet our expectations. However, because of the durability of our business model, we are maintaining our guidance for our fourth quarter earnings per share,” said Target Chairman and CEO Brian Cornell in a statement.

NEW YORK, NY - NOVEMBER 20: A Target retail store is seen on 14th street in Manhattan on November 20, 2019 in New York City. Target has announced its 3rd quarter results, a 4.5% increase in sales and a 15% growth in revenues.  Targets strong earnings has raised their stock value 67% in 2019. (Photo by David Dee Delgado/Getty Images)

Target isn’t alone in sharing disappointing news on this past holiday season. In the past two weeks alone, investors have been forced to digest holiday same-store sales declines at Kohl’s (KSS), Macy’s (M) and J.C. Penney (JCP). The tone could be considered very surprising in light of a surging stock market and rising wages, both of which are supportive to consumer spending.

“I mean that U.S. consumer remains in a very strong shape both from a credit perspective sentiment spending,” JPMorgan CFO Jennifer Piepszak told analysts on an earnings call Tuesday.

Apparently not strong enough to buy some toys at Target or a new sweater at Macy’s in December 2019.

Nevertheless, it will be interesting to see whether buyers step into Target’s stock ahead of what could be mixed initial 2020 guidance when fourth quarter earnings are reported in February. Target has a lot going in its favor, way more than just about any other big-name retailer in the game.

It also has high Wall Street expectations, which may not work in its favor in the near-term.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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