What happened

Shares of Target (NYSE:TGT) were sliding this morning after the big-box chain posted underwhelming results for its holiday season. Comparable sales came in lower than expected as the company dealt with challenges in certain sectors, though it maintained its earnings guidance for the quarter. As a result, the stock was down 7.2% as of 10:55 a.m. EST.

So what

Target said comparable sales rose 1.4% in the November/December period, which was below the company's earlier forecast of 3%-4% growth. Digital sales increased just 19% in the period, its slowest growth rate in that category in recent memory, down from 31% in the third quarter. 

Three different Target employees working at checkout

Image source: Target.

Management acknowledged the results were weaker than expected as the company dealt with a shorter holiday season and that it performed poorly in key holiday gifting categories like toys and electronics, whose comparable sales were flat and down more than 6%, respectively. However, the company noted that it still gained market share in toys, according to the NPD Group, and the weakness in electronics seemed to stem in part from a lack of a "must-have" device this holiday season. 

CEO Brian Cornell said, "We faced challenges throughout November and December in key seasonal merchandise categories and our holiday sales did not meet our expectations. However, because of the durability of our business model, we are maintaining our guidance for our fourth quarter earnings per share."

Now what

There was some good news in the results. Target performed well in higher-margin categories like apparel, with comps up 5%, and beauty, with comps up 7%, which helped support profitability and keep the company on track for adjusted earnings per share of $1.54-$1.74 for the fourth quarter and $6.25-$6.45 for the full year. 

Target's same-day fulfillment services (Order Pickup, Drive Up, and Shipt) also continued to resonate with customers; they grew more than 50% from the same period a year ago and contributed three-quarters of digital sales growth.

Management remains optimistic about 2020 and stood by its long-term forecast of high-single-digit annual EPS growth. Considering Target's mostly strong performance outside of key holiday categories, the company still looks poised for solid growth this year and should continue to outperform the broader retail industry.