Retail sector ETFs may be in for a rough earnings season after disappointing holiday sales last quarter.

Poor holiday sales could drag on traditional retail sector-related ETFs, such as the SPDR S&P Retail ETF (XRT), VanEck Vectors Retail (RTH), and the broader Consumer Discret Sel Sect SPDR ETF (NYSEArca: XLY).

Target (NYSE: TGT) was the latest to fall victim to the weak quarter after showing lackluster results in its latest quarterly update, shocking many who anticipated a strong holiday season. TGT shares plunged 6.9% on Wednesday.

The retailer said same-store sales over November and December were up just 1.4%, compared to growth of 5.7% a year earlier, CNBC reports.

CEO Brian Cornell said Target “faced challenges throughout November and December in key seasonal merchandise categories,” but “because of the durability of our business model, we are maintaining our guidance for our fourth-quarter earnings per share.”

“While we knew this season was going be challenging, it was even more challenging than we expected,” Cornell added in a separate blog post.

Brick And Mortar Business Decline

It wasn’t just Target that had a poor season, Macy’s, J.C. Penney and Kohl’s have also reported same-store sales declines over the holidays.

Data tracker NPD Group said sales of key gift categories rose just 0.2% between Nov. 3 and Dec. 28 compared with the same period last year, pointing to notable sluggishness in demand for apparel and toys, in particular, Bloomberg reports.

“Retailers did not have their typical robust peak season,” NPD’s chief industry advisor Marshal Cohen told Bloomberg. “It’s flat. You don’t want a flat peak, that’s like an oxymoron.”

Some retailers, though, blamed a shortened holiday-selling period for their weakness – there were six fewer days between Thanksgiving and Christmas in 2019 compared with 2018 since Thanksgiving came especially late this year.

Looking ahead, investors will be watching for key players like Walmart Inc. and Best Buy to update markets next month.

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