Results spur questions about its turnaround efforts, consumer
spending
By Sarah Nassauer
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 16, 2020).
Holiday sales were sluggish at Target Corp., raising questions
about the health of the U.S. consumer and whether the retailer's
turnaround is losing steam.
Target's November-December sales rose 1.4% for stores and
digital channels operating for at least 12 months, the company said
Wednesday. It warned that growth for its full fiscal fourth
quarter, which includes January, would likely fall short of the 3%
to 4% gain it previously predicted.
"We faced challenges throughout November and December in key
seasonal merchandise categories and our holiday sales did not meet
our expectations," said Chief Executive Brian Cornell, who after
taking the helm in 2017 launched a plan that included store
remodeling and investment in Target's digital platform.
The Minneapolis-based chain cited weak sales of toys and
electronics, two big sellers during the gift-giving season. It also
said Wednesday it was appointing a new executive to oversee its
roughly 1,800 stores.
A government report on December retail sales due out Thursday
will provide a better picture of whether Target's shortfall
reflects missteps at the retailer or is evidence of a broader
pullback by U.S. consumers. Investors are also waiting to hear from
Walmart Inc., the country's biggest retailer, which is slated to
report quarterly results next month.
Market researcher NPD Group this week said holiday results were
lackluster, estimating that total sales rose 0.2% from a year
earlier. The National Retail Federation is also expected to update
its estimate on Thursday; the group had predicted more than 3%
growth in holiday sales in stores and online.
Target's shares nearly doubled last year and closed near an
all-time high on Tuesday. They fell 6.6% to $117 on Wednesday.
While other traditional retailers have struggled, Target has
been held up as a chain that has adapted to shifting consumer
habits by ramping up its e-commerce operations and remodeling its
stores.
Digital sales in November and December rose 19% from a year
earlier, following 31% growth in the prior quarter. To drive online
sales, the company has been rolling out a variety of home-delivery
and store-pickup services and during the holidays offered free
shipping on all orders placed on its website.
Some analysts said the year-end results at Target didn't
necessarily signal weakness in its strategy. They pointed to a
holiday season that had six fewer days between Thanksgiving and
Christmas compared with the prior year, which compressed the time
for stores to deliver packages to homes and shoppers to make
impulse purchases. There were also fewer new electronics devices on
the market to entice gift buyers, analysts said.
"Some of the shortfall can be explained away," Chuck Grom, of
Gordon Haskett, wrote in a note.
Sales at Target have been robust in the past couple of years
aided by its turnaround plan, which included adding more in-house
brands, remodeling stores and cutting prices, as well as investing
in its digital business. Mr. Cornell announced the turnaround plan
in 2017 following a weak holiday performance.
The company has boasted a streak of eight consecutive quarters
of at least 3% growth in comparable sales, including a 4.5% jump
for the period ended Nov. 3. In November, Mr. Cornell said the
company was gaining market share in the apparel, home and beauty
categories. "We are starting to see the bifurcation of winners and
losers" in retail, he told analysts a week before Black Friday.
Target said Wednesday that many categories continued to do well
but their growth wasn't enough to offset flat toys sales and a 6%
drop in electronics sales, as well as weakness in some home
categories.
The company maintained its profit targets, in part because the
categories with stronger sales earn high margins. For its fiscal
fourth quarter, Target expects adjusted earnings per share of $1.54
to $1.74 and full-year adjusted earnings of $6.25 to $6.45 a
share.
Some analysts say they weren't expecting toy sales to match the
growth of the prior holiday season, when the closing of Toys 'R' Us
stores sent shoppers elsewhere.
Target's "holiday sales were not terrible," said Morgan Stanley
retail analyst Simeon Gutman, who was expecting flat toy sales and
notes that holiday sales appear to be weak based on reports so far.
"Target's ability to manage the business well through weaker sales
is the silver lining."
Several other retailers have reported sluggish holiday sales,
but most were department stores and specialty chains that entered
the holiday season on weak footing. Macy's Inc., J.C. Penney Co.,
Kohl's Corp. and Victoria's Secret parent L Brands Inc. all
reported lower sales for November and December.
Costco Wholesale Corp. was a bright spot, reporting
comparable-sales growth of 9% for the five weeks ended Jan. 5,
including e-commerce and international sales.
Along with Walmart, Amazon.com Inc., has yet to detail holiday
sales results. The day after Christmas, Amazon said simply that it
set a record for orders in the season and noted strong demand for
toys, fashion and electronics.
Overall, the strong U.S. economy, low unemployment and rising
wages boosted retail sales last year, government data show. But
much of the growth is coming from e-commerce, not store visits. For
Nov. 1 through Christmas Eve, online sales rose nearly 19% compared
with growth of 1.2% for in-store sales, according to Mastercard
SpendingPulse.
The holiday-sales reports so far leave a muddled picture of the
health of the economy, but there aren't specific signs that
consumer spending is weakening, said Rod Sides, vice chairman of
retail at Deloitte LLP. "Once we get the other data points in a
week or so, we will know," he said.
Target said its chief stores officer, Janna Potts, 52 years old,
will retire and be succeeded immediately by another company
veteran, Mark Schindele, 50.
Ms. Potts, a 30-year Target employee, took over as stores chief
in early 2016. She will stay in an advisory role until May 1.
Mr. Schindele, who has worked at the company for nearly 20
years, was most recently responsible for remodeling stores and
rolling out smaller-format stores in urban areas.
The company also promoted two executives to permanently fill the
role vacated in early November when Mark Tritton resigned as chief
merchant to take over as CEO of Bed Bath & Beyond Inc.
Christina Hennington and Jill Sando will serve as chief
merchandising officers.
Write to Sarah Nassauer at sarah.nassauer@wsj.com
(END) Dow Jones Newswires
January 16, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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