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By Siddharth Cavale and Savyata Mishra
(Reuters) - Target on Tuesday reported higher holiday-quarter earnings on a smaller-than-expected sales decline and predicted that annual comparable sales would come in largely above Wall Street expectations.
The mass merchandiser is banking on same-day services, product launches and a new membership program to boost spending at its stores.
Target reported adjusted earnings of $2.98 per share in the fourth quarter, compared to $1.89 per share in the same period a year earlier. Analysts on average were expecting $2.42 per share, according to LSEG estimates. It wasn't immediately clear if the figures were comparable.
Total comparable sales in the November to January period fell 4.4% compared with the 4.6% decline analysts were expecting, in part due to a recovery in sales on Target.com. Online sales fell 0.7% during the fourth quarter, an improvement from the 6% decline in the previous quarter.
Robust Black Friday and Cyber Monday spending helped drive holiday-quarter sales, the company said, and shoppers gravitated to newly launched collections such as Kendra Scott jewelry and private-label Figmint line of kitchenware.
Shoppers also responded to same-day pickup services, such as Drive-up, which made up more than 10% of total sales in the quarter, the company said.
The quarter marks the end of a challenging year for Target. During the second quarter, Target reported its first decline in store visits and comparable sales since before the pandemic as inflation limited Americans' spending on discretionary items, which accounts for 50% of Target's revenue.
Commerce Department data showed that prices on a basket of goods and services continued to tick up in January.
The chain also faced unique challenges including a backlash in May over its LGBTQ-themed merchandise and a surge in retail crime that it said led to the closure of nine stores in New York, San Francisco, Seattle, and Portland, Oregon.
Bigger rival Walmart said last month that inflation is driving shoppers to hunt for value on everyday goods, though there are signs that discretionary spending is picking up.
Looking ahead, Target will focus on rolling out new products and services, including a new Target Circle membership program, to reignite sales, traffic and market share gains in 2024, Target's CEO Brian Cornell said in a statement.
Media reports last month said Target was weighing a new paid membership program similar to Amazon's Prime and Walmart's Walmart Plus program.
Target introduced its earnings outlook for 2024, saying it expects adjusted earnings between $8.60 to $9.60 per share. The midpoint of that range was largely in line with analysts' expectations of $9.14 per share, according to LSEG data.
Comparable sales are expected to be in a range of flat to up 2% this year, compared to analysts' average expectations of 0.86% rise.
Gross margins in the fourth quarter ended Feb. 3 rose to 25.6%, from 22.7% a year earlier, aided by lower freight and supply-chain costs, healthy inventory and lower markdowns.
(Reporting by Savyata Mishra in Bengaluru and Siddharth Cavale, Editing by Nick Zieminski)
