Buy the Dip in Target?

Shares of big box retailer Target slumped Wednesday, falling 6.59% after reporting disappointing holiday sales results.

Comparable sales were lower than expected, particularly in the three important holiday classes of electronics, home goods, and toys. The electronics category saw a drop of more than 6% versus last year, while home goods were down roughly 1%, and toys were flat. Even so, Target said they gained market share in the toys category, and said the weakness in electronics was due to the lack of a “must-have” item in that category this year.

Overall the company said November/December sales growth was 1.4%, which was well below the company’s earlier forecast of 3-4% sales growth. Even digital sales were disappointing, growing just 19%, which was the slowest rate in the past several years. By comparison the third quarter saw digital sales growing at 31%.

Target management acknowledged the results were weaker than expected, while also pointing out their struggles with the shortened holiday season. This year the shopping season had six days less than usual, which had a decidedly negative impact on Target’s sales. Other retailers have been reporting similar disappointing comparable sales due to the shorter holiday shopping season as well.

It wasn’t all bad news though. Target saw solid growth in higher-margin categories such as beauty and apparel, which were up 7% and 5% respectively.

Management said they still believe in their overall strategy, and maintained their revenue and earnings guidance for the full year.

All of which begs the question for investors of whether or not to buy this dip.