Target foresees highly competitive holiday

A cautious outlook on the crucial holiday season overshadows a strong quarter from Target

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NEW YORK — A cautious outlook on the crucial holiday season overshadowed progress Target made in bringing more customers to its stores, pulling its shares down sharply. The shares of other retailers fell as well, even though overall economic figures show people still spending.

Target reported higher customer traffic numbers and better sales at established stores as its investments in improving its stores and online capabilities appear to be paying off. But those changes, as well as its moves to cut prices and raise employee wages, are dragging down profits.

The discount chain reported a 21 percent drop in fiscal third-quarter profit.

Seeking to soothe investors, CEO Brian Cornell said that while the fourth quarter is “always competitive,” the retailer is entering the holiday period with “lots of confidence.”

“While the bulk of the season is still ahead of us, we are very happy to see how these early efforts have set the tone for the season,” Cornell said.

Overall U.S. retail sales rose at a solid pace last month, as people spent more at electronics, grocery, clothing and sporting goods stores. Retail sales increased 0.2 percent in October, the Commerce Department said, after a 1.9 percent gain in the previous month. The National Retail Federation trade group expects holiday sales to rise 3.6 percent to 4 percent and at least match the 3.6 percent growth of a year ago.

Target, like all traditional retailers, is in fierce competition with Amazon.com and needs to cater to the growing number of shoppers who transition seamlessly between store aisles and mobile phones when they shop.

The company is in a stronger position than it was a year ago. Minneapolis-based Target had said in February that it would spend more than $7 billion to revamp its stores and online businesses over the next few years. Cornell says that those investments are either exceeding or meeting expectations.

Revenue at stores open at least a year rose 0.9 percent, better than analysts had predicted. It was also the second consecutive quarter that metric rose. Online sales rose 24 percent, and customer traffic was up 1.4 percent.