Target's online sales growth slows; margins pressured

Wed Nov 18, 2015 12:26pm EST
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By Nandita Bose

CHICAGO (Reuters) - Target Corp (TGT.N: Quote) 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.

"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: Quote) and Nordstrom Inc (JWN.N: Quote) 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: Quote), 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.   Continued...

Shopping carts from a Target store are lined up in Encinitas, California May 22, 2013.  REUTERS/Mike Blake