Target forecasts surprise drop in 2017 comparable sales, shares sink

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Target Corp (TGT. N) forecast a surprise drop in full-year sales at established stores on Tuesday and reported a steeper-than-expected fall in holiday-quarter sales due to "unexpected softness" at its stores. The retailer's shares tumbled nearly 12 percent in premarket trading. Target's net sales have now declined for six quarters in a row as shoppers increasingly gravitate to online retailers such as Amazon.com Inc (AMZN. O) and spend more on big-ticket purchases such as cars and home renovations rather than on electronics, food and apparel. The Minneapolis-based retailer said it expects sales at stores open for at least a year to decline in the low-single digit percentage range in fiscal 2017, after reporting a fall of 0.5 percent in 2016. Analysts on average were expecting the company's same-store sales to increase 0.4 percent in 2017, according to analysts polled by research firm Consensus Metrix. Target also forecast full-year earnings from continuing operations of $3.80-$4.20 per share, while analysts' on average were expecting its profit to top $5.00, according to Thomson Reuters I/B/E/S. The retailer also reported a drop in gross margins as well as a bigger-than-expected decline in profit for the fourth quarter, reflecting pressure from discounting and clearance as well as costs from its shift from brick-and-mortar to digital channels.

"Our fourth quarter results reflect the impact of rapidly-changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores," Target Chief Executive Brian Cornell said in a statement. Target's results compare poorly against those of bigger rival Wal-Mart Stores Inc (WMT. N), which last week reported higher-than-expected U.S. sales for the holiday quarter as its low prices attracted more customers to its stores and online activity accelerated. Wal-Mart and Kroger (KR. N) have been aggressively cutting prices to gain market share.

Target's net income slumped to $817 million, or $1.45 per share, in the three months ended Jan. 28, from $1.43 billion, or $2.32 per share, a year earlier. Analysts on average were expecting a profit of $1.51 per share, according to Thomson Reuters I/B/E/S. The big box retailer's same-store sales fell 1.5 percent, missing analysts' average estimate of a decline of 1.3 percent, according to research firm Consensus Metrix.

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