Target's online sales growth slows; margins pressured

Target Corp on Wednesday reported a higher quarterly profit and raised the low end of its fiscal-year forecast, but its shares fell nearly 5 percent because of slower growth in online sales and margin pressures.

The fourth-largest U.S. retailer, which is in the midst of a turnaround plan, said growth in its "signature categories," including apparel and 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.

Digital sales, which include online and mobile increased 20 percent, outpacing the industry but missing Target's expectations, Chief Financial Officer Cathy Smith said. In March, the company said it expected a 40 percent rise for the year.

Smith attributed the slowdown to a 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 and Nordstrom Inc have reported similar problems.

Target's gross margins were slightly lower than a year earlier because of reimbursement pressure in its pharmacy operations, which it is selling to CVS Health Corp, and investments in its brands.

The company 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, compared with 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. Digital sales added 0.4 percentage points to comparable sales growth.

In March, Target announced a restructuring plan to eliminate several thousand corporate jobs and revamp grocery operations. It also included a $1 billion investment in technology in areas such as supply chain, and the company is focusing on improving stock levels in stores.

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.

The Minneapolis-based company's shares were down 4.6 percent at $69.55 in morning trading. At Tuesday's close, the stock had fallen nearly 4 percent this year.