After a blockbuster year, Target's holiday sales were worse than expected

Target, one of the best performers in retail in the past year, brought in lower-than-expected sales in November and December, raising questions about whether it was simply a stumble for the company or a larger sign that the holiday shopping season turned out to be a lackluster one overall.

The Minneapolis-based retailer's shares tumbled 7% on Wednesday after it said its comparable holiday sales rose 1.4%, well below the 3% to 4% the company had forecast.

CEO Brian Cornell called it a "tough miss" and noted that the biggest weaknesses were in toys and electronics, which account for a larger portion of Target's business over the holidays compared to the rest of the year.

"We faced challenges throughout November and December in key seasonal merchandise categories and our holiday sales did not meet our expectations," he said in a statement.

Target also announced a series of leadership changes. Its chief stores officer, Janna Potts, 52, is retiring after more than 30 years with the company. She is being succeeded by Mark Schindele, another Target veteran who most recently, as senior vice president of properties, oversaw Target's extensive store remodeling efforts as well as the opening of new smaller-format stores.

Along with Walmart and Amazon, Target had been considered among the winners of retail most of last year after posting strong sales that contrasted with department stores, which continue to flounder.

Target's shares have surged to record highs in recent months as investors have increasingly been impressed by the results of its strategy of refurbishing stores, refreshing its private-label brands, and improving its online offerings of fast delivery, curbside and in-store pickup.

"Now there are some little cracks in the armor," Brian Yarbrough, an analyst with Edward Jones, said after Target released its disappointing holiday numbers. "But what will be key is also what Walmart and Amazon say. They will be the bellwether."

Both Amazon and Walmart will report their holiday sales in the coming weeks. Richfield-based Best Buy, whose shares also fell Wednesday, will release its figures next month.

The National Retail Federation, which had forecast holiday sales to increase by between 3.8% and 4.2%, is also scheduled to release its holiday-sales tally this week, as is the federal government's report on December retail sales.

With low unemployment and months of strong consumer spending, many industry groups and research firms had predicted robust growth for 2019's holiday season of between 4% and 5%. But the holiday results trickling out from retailers thus far have painted a mixed picture.

On Tuesday, the NPD Group said that many key general-merchandise categories saw just 0.2% growth during the holidays, according to its data, with apparel and toys experiencing the largest declines.

"Consumers continue to migrate to more 'intangible' gifting, putting more emphasis on experiences than things and focusing more on how they live than how they look this holiday," Marshal Cohen, NPD's chief industry adviser, said in a statement.

But last month, Mastercard SpendingPulse released figures that indicated a different trajectory, saying its data showed that holiday retail sales rose 3.4%.

During the holidays, Target said its sales of electronics dropped 6%, home products declined 1% and toys were relatively flat compared to the year earlier.

Online sales rose 19%, a slowdown compared to 29% in the same period a year ago.

But because of the "durability of our business model," Cornell said Target has nonetheless managed to maintain its profit guidance in terms of earnings per share for the fourth quarter.

Other higher-margin categories such as apparel, which jumped 7%, and beauty, which rose 7%, helped make up for the weakness in other areas.

Despite the lower-than-expected sales, Target said it continued to grow its market share in many categories, including toys, referencing data of tracking firms NPD Group and IRI. That seemed to suggest that industrywide holiday sales were also not as high as expected.

"As we dissect the results, there are many bright spots within that would point to this being more of a blip rather than the start of a new trend, and the potential for comps to reaccelerate in the periods ahead," Seth Sigman, a Credit Suisse analyst, wrote in a research note.

Neil Saunders, managing director of GlobalData Retail, noted that Target's results came on the back of 5.7% same-store sales growth during last year's holidays, a tough base comparison. Target's performance across the rest of its assortment continues to be strong, but the slide in electronics sales was particularly disappointing, he said.

"The technology lineup in electronics was far from inspiring this season — something that is largely out of Target's control — but which nonetheless affected sales," he wrote in a note.

In addition to the leadership changes announced Wednesday, Target said it is also making permanent the interim structure it had previously announced of splitting up the chief merchandising officer role among two executives in the wake of its previous chief merchant, Mark Tritton, leaving to become CEO of Bed Bath & Beyond.

Christina Hennington will continue to oversee hard lines, essentials, and pricing and promotions while Jill Sando will be in charge of apparel, home and accessories as well as Target's private-label brands. Both leaders will share the title of chief merchandising officer and will join Target's C-Suite.

"This structure reflects the size, scale, and complexity of Target's multi-category commercial businesses and operations," the company said in a statement.

Kavita Kumar • 612-673-4113