Target announces holiday sales exceeded expectations — but not profit as discounts reign king

Target on Thursday said its holiday sales were better than expected, though it kept its profit forecast the same – likely because cost-conscious shoppers stocked up on discounted items.

The Minneapolis-based chain said sales on Black Friday and Cyber Monday hit records, prompting it to raise its comparable sales growth forecast for the three months through January to 1.5% from prior expectations of flat growth.

But the retailer maintained its fourth quarter and full-year adjusted earnings per share (EPS) forecast in the range of $1.85 to $2.45 and $8.30 to $8.90, respectively, suggesting discounts were key to driving sales performance.

Target shares dipped less than 1% Thursday.

The revised outlook comes after Target reported its biggest earnings miss in two years — and then slashed its profit forecast in November.

The retailer blamed the softer sales on a more hesitant consumer bogged down by years of high inflation, as well as incurred costs preparing for a port strike, which did not last as long as retail analysts had feared.

Target’s latest announcement offered a peek into a crucial shopping season that will reveal whether US consumers continued to pull back on spending after years of sticky inflation.

Rival retailers like Lululemon, Abercrombie & Fitch and American Eagle raised their fourth-quarter forecasts earlier this week – but their shares traded lower since even the revised outlooks were lower than what investors had hoped.

In November and December combined, Target said total sales jumped 2.8% and same-store sales rose 2%. Digital sales grew nearly 9% compared to the year before. 

Some of Target’s ventures helped contribute to the boost in sales. Sales in its same-day delivery option Target Circle 360 grew 30%. The company also saw about 50% growth in Target Plus, its third-party marketplace. 

Traffic to Target stores and its website increased about 3% compared to the same period last year. December marked Target’s eighth month in a row of traffic gains compared to the year before.

To contend with a leaner customer, Target leaned into discounts and deals heavily last year, especially ahead of shopping holidays. In October, the retailer said it was slashing prices on 2,000 items, including toys, beauty products, food and medicine. 

Earlier in the year, Target had vowed to lower prices on 5,000 items. The retailer said it expected to drop prices on 10,000 items by the end of the year.

It appears that move has paid off. Target said both Black Friday and Cyber Monday raked in record-high sales for the company.

Target said products like clothing and toys – which are usually marked up higher than necessities like medicine and food – “saw a meaningful sales acceleration” compared to the quarter before.

But, while Target and other retailers have been reporting robust sales, heavy discounting could be dwindling their profits. It’s unclear whether customers will continue shopping in full-force when these deals go away.

The retailer saw a big jump in sales during its “Circle Week,” for example. The sales week coincided with Amazon’s Prime Day event and offered deals on Halloween decorations and holiday gifts in early October.

“It was one of our biggest Circle Weeks that we have ever had,” Rick Gomez, Target’s chief operating officer, said on Monday during the National Retail Federation’s conference. “But the sales before the week and the sales after the week were lower. There was a dip in sales. The consumer was being very intentional.”

He acknowledged that US shoppers are “working on a budget.”

On Thursday, Target also announced a slew of changes at the executive level that “will further position the company to meet its long-term goals.” The changes will start to take place in February. 

Chief Stores Officer Mark Schindele will retire after 25 years at the company. Adrienne Costanzo, currently the senior vice president of store operations, will take his place.

Chief Information Officer Brett Craig will retire after 15 years at Target and be replaced by Prat Vemana, the company’s chief digital and product officer.

Sarah Travis, Target’s senior vice president of Roundel, its advertising business, will take on a new role as chief digital and revenue officer.

Target is also likely preparing for a new chief executive. Longtime CEO Brian Cornell agreed to stay for three more years in 2022. The company has not yet revealed when his contract ends or who his successor will be.

In late September, Jim Lee, PepsiCo’s former chief financial officer, stepped into the same role at Target. Michael Fiddelke, who previously held the role, is now Target’s chief operating officer.