Target on Thursday said its holiday sales were better than expected but left its profit forecast unchanged, likely as cost-conscious shoppers stocked up on discounted items.
The Minneapolis-based chain announced record Black Friday and Cyber Monday sales, up from its previous forecast for comparable sales growth for the three months ending in January of flat growth. The rate was raised from 1.5% to 1.5%.
However, the company maintained its fourth-quarter and full-year adjusted earnings per share (EPS) estimates in the ranges of $1.85 to $2.45 and $8.30 to $8.90, respectively, suggesting that discounts were key to boosting sales performance. .
The stock was down less than 1% on Thursday.
The outlook revision comes after Target reported its biggest revenue shortfall in two years and subsequently cut its profit forecast in November.
The company blamed weak sales on years of high inflation that left consumers stranded and made it expensive to prepare for a port strike, which retail analysts had feared. It didn't last long.
Target's latest announcement offers a glimpse into a crucial shopping season that will reveal whether U.S. consumers continue to hold back on spending after years of persistent inflation.
Rival retailers including Lululemon, Abercrombie & Fitch and American Eagle raised their fourth-quarter earnings estimates earlier this week, but their stock prices fell as even the revised outlooks fell short of investors' expectations.
Target said total sales increased 2.8% in November and December combined, and same-store sales increased 2%. Digital sales increased nearly 9% year over year.
Some of Target's venture businesses contributed to the sales increase. Sales of same-day delivery option Target Circle 360 increased 30%. The company also saw approximately 50% growth in its third-party marketplace, Target Plus.
Traffic to Target stores and its website increased approximately 3% compared to the same period last year. December marked Target's eighth consecutive month of year-over-year traffic growth.
To compete with leaner customers, Target last year focused on discounts and sales, especially ahead of shopping holidays. In October, the company announced price cuts on 2,000 items, including toys, beauty products, food and medicine.
Target earlier this year promised to lower prices on 5,000 items. The retailer said it plans to lower prices on 10,000 items by the end of the year.
It appears that the move worked. Target said its sales on both Black Friday and Cyber Monday were record highs.
Target said products such as clothing and toys, which are typically priced higher than essentials such as medicine and food, “were seeing significant sales increases” compared to the previous quarter.
But while Target and other retailers are reporting strong sales, deep discounts could hurt profits. It's unclear whether customers will continue shopping in earnest after these sales end.
For example, this retailer saw a significant increase in sales during “Circle Week.” The sale week coincided with Amazon's Prime Day event, which offered deals on Halloween decorations and holiday gifts in early October.
“This was one of our biggest circle weeks Rick Gomez, Target's chief operating officer, said Monday at the National Retail Federation conference. “But sales before the week and sales after the week went down. There was a drop in sales. Consumers were very intentional.”
He acknowledged that U.S. shoppers are “working on a budget.”
On Thursday, Target also announced a number of changes at the executive level that will “further position the company to achieve its long-term goals.” Changes will begin in February.
Chief Store Officer Mark Schindel is retiring after 25 years with the company. His successor will be Adrian Costanzo, currently senior vice president of store operations.
Chief information officer Brett Craig is stepping down after 15 years at Target and will be replaced by Pratt Vemana, the company's chief digital and product officer.
Sarah Travis, senior vice president of Roundel, Target's advertising business, will take on a new role as chief digital and revenue officer.
Target is also likely preparing to hire a new CEO. Longtime CEO Brian Cornell has agreed to stay on for three more years through 2022. The company has not yet announced when his contract will end or who will replace him.
In late September, former PepsiCo chief financial officer Jim Lee took the same role at Target. Michael Fidelke, who previously held that role, currently serves as Target's chief operating officer.
