Target's holiday sales jump 3.4 percent, much higher than forecast

Add Target Corp. to the growing list of retailers who had a robust holiday season as shoppers were in a spending mood and items like the Nintendo Switch and L.O.L. Surprise dolls helped boost sales.

The Minneapolis-based retailer reported that comparable sales in November and December rose 3.4 percent, much higher than its forecast, which called for sales to be flat to up to 2 percent. If those numbers hold up in the final weeks of the quarter as executives expect, that would be Target's best performance since 2014, when it saw declines following the 2013 data breach.

Brian Yarbrough, an analyst with Edward Jones, said Target's numbers were impressive.

"It seems like most people had a pretty good holiday," he said. "Consumers were feeling good and we didn't have abnormally warm weather. A lot of things are starting to work [for Target], but I'm not sure yet if it's the start of a trend."

Target's shares rose 3 percent Tuesday.

"Overall, this is a positive outcome," Neil Saunders with GlobalData Retail wrote in a report. "It shows Target is doing the right things and that its ideas have merit. However, it also indicates the need for more care in execution, a faster rollout of the initiatives, and a greater sense of ambition. Ultimately, Target is doing well, but it could be doing better."

The retailer, which has been hustling to keep up with Amazon and Walmart, said it saw sales growth across all of its categories as well as higher traffic in stores and online. It also raised its profit forecast for the full fourth quarter.

"We are very pleased with our holiday season performance, which reflects the progress we've made against our strategy throughout the year," Chief Executive Brian Cornell said in a statement.

The company also noted that it saw a strong response from two new holiday strategies — adding gifting kiosks throughout the store and weekend deals promotions.

After a sales slump punctuated by a disappointing holiday the year before in which holiday sales dropped 1.3 percent, Target set out a new strategic road map last year of lowering prices, remodeling hundreds of stores, opening more small urban locations, and refreshing its portfolio of private-label brands.

Given its better holiday performance, Target said it now expects comparable sales in 2017 to be up just over 1 percent, higher than the low single-digit decline executives told investors last year to expect as it retooled its business.

Holiday sales across the retail industry are shaping up to be fairly strong, helped by an improving economy, high consumer confidence and low unemployment.

A number of department stores, which have struggled in recent years, have reported surprisingly strong sales in recent days. On Monday, Kohl's had a giant 6.9 percent jump in comparable sales during the holidays.

Meanwhile, J.C. Penney had a 3.4 percent sales increase and Macy's a 1 percent rise in November and December.

Target raised its profit forecast for the full fourth quarter to a range of $1.30 to $1.40 in adjusted earnings per share, compared to its prior range of $1.05 to $1.25. The increase was due in part to the lower tax rate the company expects to enjoy in January as a result of the recently enacted federal tax law.

The retailer, which will lay out more detailed guidance at an investors meeting in March, said it expects sales in 2018 to rise in the low single digits as it continues to launch new brands, including a new women's denim-focused brand to replace Mossimo, open about 30 new smaller stores, and remodel more than 325 stores this year.

It will also be working to rapidly expand the Drive Up service it has been testing in the Twin Cities as well as roll out a new same-day delivery service as a result of its recent $550 million acquisition of delivery firm Shipt.

Target said it plans to use additional cash generated from the new federal tax law for various capital investments, dividends, and additional share repurchase.

Kavita Kumar • 612-673-4113