Target 'stumbled' in the holidays as sales fell short
Target's comparable sales rose 1.4% in November and December, falling below the company's expectations of 3% to 4% growth for the quarter and well below the 5.7% growth in the year-ago period.
Target maintained its fourth quarter guidance and said the quarter marked the 11th straight of comp sales growth, according to a press release. But the retailer's stock fell more than 6% in pre-market trading on the sales miss for the holidays.
Digital comps grew 19% during the two-month period, a slowdown from Q3's more than 30% growth. Several categories performed well for Target, including apparel (with comps up 5%), beauty (up 7%) and food (up 3%). Others fell in the holiday period, including electronics (down more than 6%) and home (down 1%), and toy comps were flat.
Even as Target's holiday sales disappointed — on the heels of an all-around strong year for the retailer — it continued gaining market share in key areas.
The company said, based on data from NPD Group and IRI, that it grew share in apparel, beauty, home essentials and toys. Share growth in toys came even with flat comps in the category, an area of sales growth previously following the collapse of Toys R Us.
But CEO Brian Cornell said in a statement that Target "faced challenges throughout November and December in key seasonal merchandise categories." That includes toys, as well as electronics and sections of its home category. With those categories so important to the holiday period, they dragged on Target's sales. At the same time, high margin categories performed well during the quarter, which according to the company would boost the company's financial performance in Q4.
The results threw some cold water on investor excitement around Target after it posted a strong performance in the first three quarters of 2019. Analysts with Wells Fargo wrote in an emailed client note that the sales miss "suggests risk elsewhere" in the retail world as companies post results against a shortened holiday period and strong 2018 holiday numbers.
Ethan Chernofsky, vice president of marketing with foot traffic analytics firm Placer.ai, said in emailed comments that traffic to Target fell just over 1% in November and December from 2018, which he attributed to the shortened holiday period. At the same time, Target's traffic spiked 8% on Black Friday and had "really strong weeks heading into Christmas," Chernofsky said. "The fact that the decrease was limited is a massive testament to the strength of the brand and its relationship with consumers," he added.
Neil Saunders, managing director of GlobalData Retail, described in emailed comments Target's holiday period as a "sharp deterioration" from Q3, though he also noted the company faced a tough comparison to the previous holiday period and performed well in many of its important categories.
The declines in electronics and home, though, Saunders described as "particularly disappointing." He noted those could be the results of the shortened time between Black Friday and Christmas, causing consumers to "preserve their budgets for holiday things rather than splash out on big-ticket bargains." More, he described a market-wide technology lineup in electronics as "far from inspiring this season."
"Overall, Target remains a good retailer on the right trajectory," Saunders said. "It may have stumbled and slowed over the holidays, but it is still one of the most attractive runners in the retail race."