UPDATE 1-Target slows store plans, toughens credit terms

(Adds details, updates stock price)

By Nicole Maestri

NEW YORK Oct 23 (Reuters) - Discount retailer Target Corp (TGT.N) said on Thursday it has scaled back its 2009 store opening plans and toughened standards in its credit card business to improve results in an economic slowdown.

"We are not happy with the current pace of our sales, and we are working diligently to drive our top-line performance," said Chief Executive Officer Gregg Steinhafel, speaking at an analyst and investor meeting broadcast over the Internet.

While Target has made a name for itself selling cheap but trendy designer clothes and home decor, its business has faltered in the past year as shoppers shift spending in favor of basics, like food and toiletries.

Its profits are also taking a hit as more customers fall behind on payments of their Target credit cards.

In August, it reported its fourth straight quarterly profit decline even as larger rival Wal-Mart Stores Inc (WMT.N) saw profits rise from consumers seeking out bargains.

Target said on Thursday it has cut 2009 store opening plans, canceling projects that no longer make financial sense.

"We'll now open about 70 net new stores in 2009, and we know we will open fewer still in 2010, although it's a bit premature to speculate just how many," said Chief Financial Officer Doug Scovanner. In August, Target said that for 2009, it was projecting adding about 70 to 75 net new stores.

The retailer also told analysts it is cracking down on its credit card terms, even for cardholders in good standing.

Earlier this year, Target sold a 47 percent interest in its credit card business to JPMorgan Chase & Co (JPM.N) for an initial investment of $3.6 billion. Target continues to run that operation.

Target shares closed 1.56 percent higher at $33.93.

LIMITING CREDIT RISK

With the economy deteriorating, analysts have feared the credit card operations will hurt Target's profits as more customers fail to pay their bills. Earlier this month, Target warned its third-quarter earnings per share could miss Wall Street estimates as more credit card loans go bad.

Target said on Thursday it has increased its collections "intensity," making contact with credit card holders earlier than in the past when they fail to pay their bills.

It has become more aggressive in reducing credit lines for card holders, including those who may be in good standing but live in "high risk" states like Arizona and Nevada, which have been hit hard by the housing market downturn.

Scovanner said credit card segment profit for 2008 will likely be below levels it reported in 2005, and its credit card write-offs for the full-year will be about 9 percent, worse than a previous forecast of 8 percent to 9 percent.

He expects write-off rates to peak in the first or second quarter of next year.

Meanwhile, as newly tightened lending standards have made it difficult for some retailers to run their business or acquire new inventory, Scovanner said he does not expect to have any liquidity-related issues in the near term, and that seasonal funding needs are already 100 percent met.

CHANGING PERCEPTION

Target said there is a perception among some shoppers that its competitors offer lower prices and it is trying to erase those "misconceptions."

To do so, it is placing a bigger emphasis on the "Pay Less" side of its "Expect More. Pay Less" tagline. It is featuring fewer items in its weekly circular, but highlighting their low prices, while also adding signs in stores that point out deals under $5, under $10 or under $15.

It has also revamped its holiday marketing to focus on its unique merchandise and its discount prices.

As shoppers remain focused on buying necessities, Target also said it is testing a general merchandise store with a bigger selection of food, such as frozen and perishable items.

To avoid markdowns it is removing slow selling merchandise from its shelves, while increasing the selection of its own brands, like Archer Farms food, that it offers.

But Steinhafel made it clear that the retailer does not intend to change its long-term business strategy of differentiating itself with unique, trendy merchandise.

"Let me be clear, the changes we are driving will not change the essence of the Target brand or the Target shopping experience," he said. (Reporting by Nicole Maestri, editing by Gerald E. McCormick and Gunna Dickson)