By Siddharth Cavale
NEW YORK (Reuters) -Target raised its holiday-quarter comparable sales forecast on Thursday, buoyed by robust shopper demand for clothing, toys and beauty products during November and December, but profit margin concerns sent its shares down nearly 3%.
The Minneapolis-based chain on Thursday said sales on Black Friday and Cyber Monday hit records, prompting it to raise its comparable sales growth forecast for the three months through January to 1.5% from prior expectations of flat growth.
But the retailer maintained its fourth quarter and full-year adjusted earnings per share (EPS) forecast in the range of $1.85 to $2.45 and $8.30 to $8.90, respectively, suggesting discounts were key to driving sales performance.
Target (NYSE:TGT)'s shares were down 2.6% in morning trading. Including today's losses, its stock is down 7% over the past year, as analysts said investors might want more clarity on reaffirmed profit forecasts.
"Despite the better same-store sales performance, the EPS guide was reiterated, likely due to margin implications," Jefferies analysts wrote in an note.
The brokerage said Target's early inventory buildup in the previous quarter, meant to avoid East Coast port strike disruptions, may have continued to weigh on profits during its holiday quarter.
It estimated the costs for preparing for the three-day strike in October reduced the retailer's profit margins by nearly 1 percentage point.
Still, Target's sales performance is in contrast to rival Macy's (NYSE:M), which issued a more downbeat outlook for the holiday quarter.
It also surpassed initial estimates from data and research firms that had predicted a slightly weaker Black Friday and Cyber Monday for Target compared to rivals Walmart (NYSE:WMT), PDD's Temu and Shein.
Earlier this week, apparel retailers, including Lululemon (NASDAQ:LULU), Abercrombie & Fitch and American Eagle (NYSE:AEO), also raised their holiday-quarter sales expectations as discounts at stores and online drew in more customers.
Target's comparable sales rose 2% during November and December, Target said, driven by a nearly 3% rise in shopper visits to its website and 1,963 U.S. stores.
The retailer saw a "meaningful" increase in the purchases of non-essential items such as apparel and toys, a change from the previous quarter where apparel sales were weak as unusually warm weather reduced demand for winter clothing.
As a result, Target had issued a much weaker-than-expected sales forecast for the holiday quarter, causing its shares to drop.
Since then it boosted advertising on streaming platforms like Peacock and Hulu after Black Friday and on Cyber Monday. It also increased promotions to attract cash-strapped customers and cut prices across a wide assortment.
Some of the promotions included up to 40% off on sweatshirts, sweatpants, fleece and denim products, while it also increased its toy collections priced under $20.
"It was a better-than-expected report and it gives us some optimism as you head into the year," Telsey Advisory Group analyst Joseph Feldman said.
Analysts and investors have noted that during the holiday season retailers who were able to offer differentiated or trendy merchandise saw a boost in sales.
Target benefited from its exclusive merchandise partnership with pop star Taylor Swift, its spokesperson said, with shoppers queuing up to buy her Eras Tour book and vinyl albums on Black Friday.
The company on Thursday also announced executive leadership changes, including the elevation of senior vice president, store operations, Adrienne Costanzo as chief stores officer and Prat Vemana's transition to chief information officer and product officer from chief digital and product officer.
Costanzo and Vemana replace Mark Schindele and Brett Craig, respectively, who are retiring. The company also promoted Sarah Travis, head of its retail media business, to executive vice president and chief digital and revenue officer.