Santa has left the target (TGT) some gifts last holiday season, but it may not be enough for investors.
The big-box retailer announced that total sales increased 2.8% year-on-year in November and December, with same-store sales jumping 2%. Record Black Friday and Cyber Monday sales helped reverse the recent trend of lagging same-store sales growth.
According to the release, an increase in discretionary spending was seen compared to the previous quarter. Digital sales also grew 9% year-on-year in November and December, reflecting “greater than 30% growth in same-day delivery” of its membership model, Cylch Target 360.
CEO Brian Cornell said the team delivered a “better-than-expected holiday season performance” and made “Target a destination for consumers.”
For the fourth quarter overall, the company anticipates same-store sales growth of approximately 1.5%, compared to previous guidance of flat growth. Wall Street had expected a rise of 0.18%, according to Bloomberg consensus estimates.
The company did not increase its profit forecast, which made investors cautious. Shares fell 2% in Thursday morning trading. Telsey Advisory Group's Joe Feldman expects promotions, loyalty programs, and higher producer costs to put pressure on profits.
Target restated the previous range of $1.85 to $2.45 for adjusted earnings per share for the fourth quarter. Wall Street expects earnings to come in at $2.19 per share.
Jefferies' Corey Tarlowe said the company “exited the Holiday season with a relatively clean inventory (even too thin in some stores, as we saw during our recent channel checks).” He added that “a port strike has been averted, but concerns remain about potential exposure to tariffs.”
Feldman, who has an Outperform rating on Target, likes the company for its “fresh merchandising and digital transformation.”
Tarlowe also sees “further upside ahead” for Target. The holiday sales period “reflects the company's value orientation, unique and differentiated variety, and the strengthening of digital business.”
In October, the company publish by the end of 2024, it will have reduced prices on over 10,000 items during the year.
In the third quarter, its rival Walmart (WMT) posted adjusted earnings per share of $0.58, alongside same-store sales growth of 5.3%. Walmart has yet to disclose its holiday results but raised its guidance for fiscal year 2025 for the third time in the last quarter.
Net sales are expected to grow between 4.8% and 5.1%, and same-store sales are estimated to jump 3% to 4%.