Target's online sales growth slows; margins pressured

Health of Target's Turnaround
Health of Target's Turnaround

Target Corp (TGT.N) faces margin pressure and will not meet its fiscal-year forecast for online sales growth, which slowed in the latest quarter, the discount retailer said on Wednesday, sending its shares down more than 5 percent.

Digital sales, which include online and mobile, increased 20 percent in the third quarter ended Nov. 1, missing Target's expectations of 30 percent, Chief Financial Officer Cathy Smith said. In March, the company said it expected a 40 percent rise for the year.

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"It's clear that in 2015 we don't expect to attain" the fiscal-year goal, Smith said on an earnings conference call. Target expects digital sales to grow 20 percent in the fourth quarter.

Smith attributed the slowdown to a double-digit decline in electronics sales, a category where Target offered "deep promotions" a year earlier.

Warm weather hurt digital and store sales of cold-weather clothing like coats and jackets, she said. Macy's Inc (M.N) and Nordstrom Inc (JWN.N) have reported similar problems.

Target's gross margins declined 9 basis points from a year earlier because of reimbursement pressure in its pharmacy operations, which it is selling to CVS Health Corp (CVS.N), and investments in its brands.

The fourth-largest U.S. retailer, which is in the midst of a turnaround plan, said growth in its "signature categories," including items for children, babies and health and wellness, was 2.5 times faster than the company average in the third quarter ended on Nov. 1.

Target raised the low end of its fiscal-year earnings forecast to $4.65 a share from $4.60. It kept the high end at $4.75.

Excluding special items, earnings rose to 86 cents per share in the third quarter from 79 cents a year earlier.

Analysts on average were expecting a profit of 85.9 cents, according to Thomson Reuters I/B/E/S.

Net sales rose 2.1 percent to $17.61 billion, beating analysts' estimates of $17.57 billion.

Target said sales at stores open at least a year rose 1.9 percent, beating the market consensus of 1.7 percent, according to research firm Consensus Metrix. The retailer expects comparable sales to grow 1 percent to 2 percent in the fourth quarter.

Recently Target told Reuters it was considering partnerships with other companies to help shore up its fresh-food supply to eliminate chronic shortages on its shelves.

Target's shares were down 5.4 percent at $68.93 in midday trading. At Tuesday's close, the stock had fallen nearly 4 percent this year.

(Reporting by Nandita Bose in Chicago; Additional reporting by Yashaswini Swamynathan; Editing by Lisa Von Ahn)

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