Growth in digital partially offsets the slump at stores

MINNEAPOLIS — Target Corp. on Tuesday reported a profit of $817 million, or $1.45 a share, in its fourth quarter, down from $1.43 billion, or $2.32 a share, a year earlier, when the retailer sold its pharmacy business to CVS Health.

Same-store sales declined 1.5% in the fourth quarter.

For 2017, the company forecasts per-share profits of between $3.80 and $4.20, well below Wall Street’s expectation of $5.37 a share. The company also expects a low-single-digit decline in comps this year.

“Our fourth quarter results reflect the impact of rapidly changing consumer behavior, which drove very strong digital growth but unexpected softness in our stores,” said Brian Cornell, Target’s chairman and chief executive officer.

In a webcast, Cornell and other Target executives met with the financial community to provide detail on investments the company is making to position Target for long-term, sustainable growth.

“We will accelerate our investments in a smart network of physical and digital assets as well as our exclusive and differentiated assortment, including the launch of more than 12 new brands, representing more than $10 billion of our sales, over the next two years,” Cornell said.

Digital channel sales increased 34% in the fourth quarter, with online sales accounting for 6.8% of total sales in the period, up from 5% a year earlier. But store traffic edged up just 0.2% in the fourth quarter, and gross margin was punished due to increased markdowns, despite an ambitious holiday strategy that included thousands of exclusive toys and an extended free shipping window.

“We will invest in lower gross margins to ensure we are clearly and competitively priced every day,” Cornell said. “While the transition to this new model will present headwinds to our sales and profit performance in the short term, we are confident that these changes will best position Target for continued success over the long term.”