Target profit falls, cautious on holiday

By Nicole Maestri

NEW YORK (Reuters) - Target Corp (TGT.N: Quote, Profile, Research, Stock Buzz) posted a surprise drop in quarterly earnings on Tuesday, hurt by weak sales of higher-profit items like clothes and home goods, and said it expects "quite modest" earnings growth for the crucial holiday fourth quarter.

Target, whose shares were down 6 percent in afternoon trading, said the soft sales environment could persist into the first half of next year, and sales of food should outpace demand for discretionary items.

The company also announced a new $10 billion share repurchase plan that replaces a previous program that had $3.4 billion remaining.

Target, the No. 2 U.S discount retailer behind Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz), said net earnings fell to $483 million, or 56 cents per share, in the third quarter ended November 3, from $506 million, or 59 cents per share, a year earlier.

Analysts, on average, had been expecting 62 cents per share, according to Reuters Estimates.

Investors are keeping a close watch on retailers' results, worried that consumers are reining in their spending heading into the holidays in the face of higher food and fuel costs, the U.S. housing market slowdown and the credit market crunch.

"Target is a great company, but I don't think they can buck every single trend that's hitting retail," said Morningstar analyst Joseph Beaulieu.

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