Target's holiday sales warning rattles the retail sector

Joe Raedle

Target Corporation (NYSE:TGT) fell sharply in early trading after the retailer missed profit estimates with its Q3 earnings report and lowered its Q4 guidance.

The retailer reported comparable sales increased 2.7% during the quarter vs. +2.5% consensus, driven by 1.4% traffic growth and a 1.3% increase in average ticket. Total sales rose 3.4% to $26.25B to top the consensus mark of $26.1B. Category performance was led by growth in frequency businesses including Beauty, Food and Beverage and Household Essentials, which offset continued softness in discretionary categories. Digital sales accounted for 17.1% of sales.

EPS, EBITDA, and operating margin all came in short of expectations for Q3. Target (TGT) also rattled investors by warning that softening sales and profit trends that emerged late in Q3 and have persisted into November. Guidance is now for a wide range of sales outcomes for the holiday quarter, centered around a low-single digit decline in comparable sales.

Looking further ahead, TGT is undertaking an enterprise-wide effort to simplify and gain efficiencies across its business, with a focus on reducing complexities and lowering costs. The aim is to save $2B to $3B over the next three years. Layoffs are not expected to be part of the efficiency push.

Shares of Target (TGT) dropped 13.48% after the holiday sales warning. Within the retail sector, Macy's (M) peeled off 2.99%, Dollar Tree (DLTR) fell 2.71% and Dollar General (DG) shed 2.00% in the early session. Even Walmart (WMT) was down 1.40% to cut into its post-earnings gain.