Target lifts holiday sales forecast; supply costs loom

Shopping carts from a Target store are lined up in Encinitas, California May 22, 2013. REUTERS/Mike Blake/File Photo

Nov 17 (Reuters) – Target Corp (TGT.N) on Wednesday raised its sales forecast for the holiday season, boosted by early Christmas shopping by Americans, even as the retailer grappled with higher costs stemming from the supply chain crisis.

Big retailers, including Walmart (WMT.N) and Target, are pulling out all the stops, including chartering container ships and leasing cargo jets, to ensure that their shelves are adequately stocked for the holiday season.

Target said its inventory levels were up more than $2 billion from a year earlier ahead of the holiday rush, while adding that it had maintained lower prices despite an increase at the vendor side due to higher raw material costs.

The added costs in getting goods to its stores have weighed on its gross margins, which fell 260 basis points in the quarter. Target shares, which have risen about 50% this year, were down about 3%.

DA Davidson analysts, however, said the increased investment in logistics to ease the pain from supply chain disruptions, while keeping prices low, will ultimately help Target attract more customers and grow its market share.

Comparable sales rose 12.7% in the quarter ended Oct. 30, beating expectations, with almost all of that growth coming from stores. Adjusted profit came in at $3.03 per share.

Store traffic jumped nearly 13% as Target attracted more shoppers through its quick same-day delivery services such as Shipt and Drive-Up.

“We’ve seen strength throughout the year and we’ve seen it punctuated during key seasonal moments … That’s going to continue as we move into the holidays,” CEO Brian Cornell said.

The company now expects current quarter same-store sales to rise in the high single- to low double-digit range, up from its prior forecast of a high single-digit increase. It, however, did not raise its operating-margin expectations for the full year.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Anil D’Silva

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