Target says its holiday sales were better than expected — but its profits weren’t

Target raised its fourth-quarter sales forecast Thursday after more consumers turned to its stores and website for holiday shopping — particularly on days known for deep discounts.

The big-box retailer now expects comparable sales in the fiscal fourth quarter to grow by about 1.5%. Thatâ€s better than its most recent outlook that the metric would be approximately flat. Comparable sales includes sales on Targetâ€s website and stores open at least 13 months. 

Yet the Minneapolis-based discounter did not lift its profit outlook — an indication that deals motivated shoppers. Target anticipates fourth-quarter earnings per share will range from $1.85 to $2.45 and full-year earnings per share will be between $8.30 and $8.90. Target will report full fourth-quarter earnings results March 4.

Target cut its profit guidance in early November after it posted its biggest earnings miss in two years and blamed some of its troubles on softer sales of discretionary merchandise and the costs of preparing for a short-lived port strike in October.

Targetâ€s report is the latest glimpse into a crucial season for the industry. Data so far has suggested it went better than feared, but investors have not been impressed. Lululemon, Abercrombie & Fitch and American Eagle, for example, all raised their fourth-quarter outlooks Monday, but shares of some of those companies traded lower that day.

Nordstrom on Friday bumped up its full-year sales forecast, but only after a conservative prior outlook. And department store rival Macyâ€s on Monday said its sales will be at or slightly below the low end of its previously stated range of between $7.8 billion and $8.0 billion.

Holiday retail sales rose 4% year over year to total $994.1 billion for Nov. 1 through Dec. 31, according to the National Retail Federation, the industryâ€s major trade group. That total excludes auto dealers, gas stations and restaurants.

NRF Chief Economist Jack Kleinhenz said in a news release that the spending pace is similar to pre-pandemic growth and was driven, in part, by lower inflation compared with the year-ago holiday season. Holiday spending rose an average of 3.6% from 2010 to 2019.

Yet shoppers are still looking for deals, he added.

“Even though consumers are still relatively healthy and there was a notable increase in spending, they remain budget conscious,� he said.

Discounts and sales events have remained a significant sales driver, as consumers emerge from a more than two-year stretch of high inflation. Itâ€s unclear how much those deals will cut into Targetâ€s and other retailers†profit margins, and whether sales will keep improving if promotions fade away.

In the combined months of November and December, Target said, total sales increased 2.8% and comparable sales rose 2% year over year. Digital sales grew nearly 9% compared with the year-ago holiday period. 

Some of Targetâ€s growth areas contributed to holiday sales. Its subscription service, Target Circle 360, contributed to a more than 30% year-over-year increase in same-day deliveries in November and December. Sales through the companyâ€s third-party marketplace, Target Plus, grew close to 50% in that time.

Guest traffic increased nearly 3% during the two holiday months from the year-ago period as online and in-person visits rose, the company said. Target said December marked the eighth consecutive month of year-over-year traffic gains.

Target has made aggressive moves to attract selective shoppers. In May, it said it would cut prices on about 5,000 frequently purchased items, including diapers, bread and milk. And then it announced another wave of price cuts in October on more than 2,000 items during the holiday season, including cold medicine, toys and ice cream. The company said that would amount to more than 10,000 items with price cuts this year by the end of the holiday season.

In a news release Thursday, Target said Black Friday and Cyber Monday saw record-high sales. The company said discretionary categories, especially apparel and toys, saw a “meaningful sales acceleration� when compared with the fiscal third quarter. Those categories tend to be higher margin than essentials such as milk and paper towels, but often go on sale during the holiday season.

In remarks at the NRFâ€s annual “Big Showâ€� conference Monday, Target Chief Operating Officer Rick Gomez said the company saw a sharp jump in sales on promotional days such as its Circle Week, an event in early October that coincided with Amazon Prime Day.

“It was one of our biggest Circle Weeks that we have ever had,â€� he said. “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.â€�

He said U.S. consumers are “working on a budget,â€� but still are willing to spend on special moments like holidays or on a “must-have item,â€� such as Taylor Swiftâ€s hardcover book about The Eras Tour. The company sold nearly 1 million copies of the book in the first week of its release.

On Thursday, Target also announced several changes to its leadership team that will start to take effect in early February. Chief Stores Officer Mark Schindele will retire after 25 years at Target and be replaced by Adrienne Costanzo, who is currently senior vice president of store operations.

Chief Information Officer Brett Craig will retire after 15 years with Target and be replaced by Prat Vemana, the companyâ€s chief digital and product officer. And Sarah Travis will become the companyâ€s chief digital and revenue officer, a new leadership role, after serving as senior vice president of Roundel, Targetâ€s advertising business, and social commerce.

Target recently got a new chief financial officer: Jim Lee, the former deputy chief financial officer of PepsiCo, who stepped into the role in late September. He succeeded Michael Fiddelke, who is now Targetâ€s chief operating officer. 

Target is also on track for a leadership change at the top of the company. In fall 2022, Targetâ€s longtime CEO, Brian Cornell, agreed to stay for three more years in a move that required the companyâ€s board to scrap its retirement age. Target has not yet announced when his contract ends and who will be his successor.