TGT Target Corp

By Khadeeja Safdar 

Target Corp. warned of weak profits and sales in the critical holiday period as the retail chain struggled to get shoppers to visit its stores and relied on discounting to compete with Amazon.com Inc. for online orders.

Sales at stores open at least a year fell 3% during November and December. Target said online revenue jumped more than 30%, but still accounted for just a fraction 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 stock fell 4.7% to $67.69 in morning trading.

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 several smaller stores in urban areas and college towns to attract younger shoppers who are increasingly buying items 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.

The holiday season was a difficult one for many retail chains. While industry sales rose about 4% from a year ago, according to the NRF, customers were searching for discounts and much of the growth came from online shopping where Amazon captures the lion's share of sales.

Chains from department stores to mall-shops have warned of weak results and announced plans to close stores. 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.

Toys R Us CEO David Brandon said toy sales started to slow after a promising results during the week of Black Friday, and that rivals started promoting heavily to compensate, causing the company to miss projections.

At Target, Mr. Cornell has been trying to reshape the company by fixing up stores and improving its merchandise selection. Target 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. The company had projected it could decline as much as 1% or rise as much as 1% from a year ago.

Target 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 khadeeja.safdar@wsj.com

(END) Dow Jones Newswires

January 18, 2017 10:35 ET (15:35 GMT)

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