Target profit falls, cautious on holiday
NEW YORK (Reuters) - Target Corp (TGT.N) 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), 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.
SALES STRUGGLES
Target's results come a week after Wal-Mart posted a better-than-expected 8 percent increase in third-quarter profit as it controlled expenses and cut prices to lure shoppers into its U.S. stores earlier than ever for holiday shopping.
Target's sales at stores open at least a year, a key retail gauge known as same-store sales, have been outpacing those at Wal-Mart in recent quarters, partly because Target caters to wealthier customers who are drawn to its trendy but cheap clothes, accessories and home decor.
But Target shoppers have not been immune to economic pressures. Twice during the third quarter, Target lowered its monthly same-store sales forecast after fewer shoppers came to its stores and sales were weak in higher-profit categories.
In the quarter, sales rose to $14.34 billion from $13.16 billion a year earlier, while credit card revenue rose to $493 million from $414 million.
Same-store sales increased 3.7 percent, compared with a 4.6 percent gain a year earlier.
On a call with analysts, Chairman Bob Ulrich said gross margins were hurt as sales of higher-profit merchandise like clothes and home decor were soft, while sales of lower-profit goods like food were strong.
To counter weaker sales, it will keep an eye on expenses, monitoring how many seasonal workers it hires for the holiday. Continued...
