Dive Brief:

• Target on Wednesday reported same-store sales in the November/December holiday period fell 1.3% and total sales fell 4.9%, which the company says reflects the impact of the December 2015 sale of its pharmacy and clinic businesses to CVS as well as a “highly promotional competitive environment.”

• E-commerce transaction growth of more than 30% was offset by a 1.7% decline in comparable store transactions. Same-store sales in the retailer’s signature categories – including wellness, beauty, baby and toys – grew nearly 3 percentage points faster than the company average. Same-store sales of electronics and entertainment declined in the high single digit range, while same-store sales in food and essentials both declined in the low single-digit range.

• In light of the results, Target lowered its fourth quarter and full-year 2016 guidance: Target now expects Q4 same-store sales to decline in the range of 1.5% to 1% percent, compared with prior guidance of between a 1% decline and a 1% increase, and expects adjusted earnings to land between $1.45 and $1.55 per share, compared with its prior guidance of between $1.55 and $1.75 per share. For the full year, Target expects adjusted earnings of between $5.00 to $5.10 per share, compared with its prior guidance of between $5.10 to $5.30 per share.

Dive Insight:

The overall promotional environment that hit the margins of several big-box retailers didn’t spare Target over the holidays. “This is shaping up to be the first quarter following eight straight quarters in which retail earnings growth is likely to underperform the broader S&P500,” Retail Metrics president Ken Perkins said in a note to Retail Dive. “The last time S&P500 earnings growth outpaced retailers was Q3 2014.”

Macy’s, J.C. Penney and Kohl’s similarly suffered over the holidays, forced to move merchandise with heavy discounting that exacerbated the thinner margins also brought by increased e-commerce. Target’s shift to boost e-commerce also softened its results, according to Moody’s Investors Service.

“Target’s holiday performance, which resulted in the company’s reduction of its Q4 and full-year guidance, is a reflection of what we viewed as a highly-promotional season on multiple fronts,” Moody’s lead retail analyst Charlie O’Shea said in a note emailed to Retail Dive. “A bright spot for Target continues to be its online business, with year-over-year growth for the season of over 30% likely to set the bar for brick-and-mortar retailers. Target also called out margin pressure resulting from costs involved in the shift online, which is a factor that will impact any retailer as it makes this shift.” 

That wasn’t lost on Target CEO Brian Cornell, though he said the retailer is making strides in updating its supply chain and improving the customer experience in stores and online. Strong Black Friday sales, December e-commerce sales and a good performance in its signature categories were undermined by “early season sales softness and disappointing traffic and sales trends in our stores.”

"While we significantly outpaced the industry's digital performance, the costs associated with the accelerated mix shift between our stores and digital channels and a highly promotional competitive environment had a negative impact on our fourth quarter margins and earnings per share,” Cornell also said in his statement. Target will release its fourth quarter financial results on Feb. 28.