Holiday Sales Sap Target -- WSJ
January 19 2017 - 3:02AM
Dow Jones News
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 khadeeja.safdar@wsj.com
(END) Dow Jones Newswires
January 19, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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