UPDATE 3-Target profit falls; sees sluggish sales growth

(Recast, adds company comments, updates stock price)

By Nicole Maestri

NEW YORK, May 20 (Reuters) - Target Corp (TGT.N: Quote, Profile, Research, Stock Buzz) posted a 7.5 percent drop in quarterly profit on Tuesday, hurt by softer sales as shoppers passed over clothes and home decor purchases in favor of basics like food.

The No. 2 U.S. discount chain behind Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research, Stock Buzz) said it expects its sales growth to remain sluggish unless the economic environment improves.

"As gas and food prices continue to rise and (the) housing market slows, consumers are facing increased financial pressure and reducing their spending, especially in discretionary categories," said Gregg Steinhafel, president and chief executive officer, on a call with analysts.

Target said profit was $602 million, or 74 cents per share, for its fiscal first quarter ended May 3, down from $651 million, or 75 cents per share, a year earlier.

Analysts, on average, had been expecting earnings of 71 cents per share, according to Reuters Estimates.

"It paints to me a picture of a company that is feeling the stresses and strains of the economic environment," said Matthew Kaufler, portfolio manager of the Touchstone Value Opportunities Fund, of Target's falling profit.

Target has carved a niche for itself selling cheap but chic designer clothes and home decor, appealing to lower- and middle-income consumers looking for the latest trends.