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Target Discloses Rare Holiday Sales Miss Amid Gains in Apparel

Target Corp. saw continued strength in sales of apparel over the holiday season, but it wasn’t enough to offset the mass merchant’s softer sales in the home and hardlines categories.

On Thursday, the company said comparable sales in the combined November/December period rose just 1.4 percent, on top of the 5.7 percent increase in the same period last year. The increase was driven mostly by traffic, helped by a small increase in average ticket.

“For the holiday period specifically, sales results came in below our expectations as we experienced softer-than-expected performance in areas of our business that are critical during the season, including electronics, toys and portions of our home assortment,” Brian Cornell, chairman and CEO, said. “

Because these categories account for a much higher portion of sales during the holidays, they have a larger impact on our overall sales growth as compared to the rest of the year,” he added. “At the same time, we’ve seen continued strength and market share gains in apparel, beauty, essentials and food and beverage.”

It wasn’t all bad news from the discounter. Despite holiday sales not meeting company expectations, the retailer, which maintained its fourth-quarter guidance, remains on track to deliver historically strong full-year results for 2019, Cornell said. Moreover, the mix and performance of higher-margin versus lower-margin categories is expected to give the retailer a stronger-than-expected gross margin mix for the holiday period, helped by “productivity improvements in our stores and supply chain, as well as meaningfully lower clearance inventory compared with a year ago,” Cornell said.

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Fourth-quarter comparable sales growth was guided to the same holiday comps range of 1.4 percent, lower than the prior projection of up 3 percent to 4 percent. The retailer maintained its fourth-quarter GAAP earnings per share forecast of $1.55 to $1.75 from continuing operations.

Fewer clearance items and cleaner inventory could mean gross margin for the quarter should see a boost, Joseph Feldman, analyst at Telsey Advisory Group, said. Solid apparel comps of 5.0 percent were due to strength in intimates, jewelry and accessories. Some children’s items reflected “on-trend private brands and continue market share gains,” the analyst said.

Target’s update raises concerns over how discount competitor Walmart fared over the frame. And then there’s the off-price retailers–The TJX Cos. Inc., Ross Stores Inc., and Burlington Stores Inc.–all of which were expected to see a good holiday selling season as consumers hunted for value buys.

Earlier in the week, teen chains Abercrombie & Fitch Co. and American Eagle Outfitters Inc. also provided a holiday update on sales.

Abercrombie guided net sales to the range of flat to up 2 precent, with comparable sales also flat to up 2 percent. “We are pleased to reaffirm our fourth-quarter outlook…. For the quarter, we expect Abercrombie comps to outperform Hollister and the U.S. to outperform international,” CEO Fran Horowitz said, adding that Abercrombie delivered its “strongest topline in over five years.”

Reaffirming its prior guidance for the quarter, American Eagle said its comps to date for the fourth quarter were flat, following a 6 percent comps gain the prior year. “Despite some expected challenges, we delivered another holiday season of record revenue, driven by strength in the Aerie brand and American Eagle’s signature jeans collections,” Jay Schottenstein, CEO, said.

Yoga brand Lululemon Athletica Inc. did even better. On Monday, the company raised fourth-quarter earnings-per-share guidance.

“We’re excited by the momentum in our business over the holiday period with guests responding well to our innovative merchandise offerings,” Calvin McDonald, Lululemon’s CEO, said.

Expecting net revenue in the range of $1.37 billion to $1.38 billion for the quarter, compared with the previous forecast of $1.32 billion to $1.33 billion, Lululemon raised its diluted EPS range to $2.22 to $2.25 from $2.10 to 2.13.

Department stores earlier this month disclosed lackluster holiday sales.