* Q3 shr $0.49 vs $0.48 analysts' view
* Suspends share buybacks, cuts 2009 capex by $1 bln
* Q3 same-store sales fall 3.3 pct
* Shares down 3 percent
(Adds comments from conference call, updates stock price)
By Nicole Maestri
NEW YORK, Nov 17 Target Corp (TGT.N) posted a
nearly 24 percent drop in profit as an economic downturn
curtails shoppers' ability to splurge on the discount
retailer's trendy wares and make payments on its credit cards.
To navigate the tough environment, Target will conserve
cash to protect its liquidity and debt ratings, the company
said on Monday.
It is temporarily suspending nearly all of its share
buybacks, has cut its 2009 capital spending plan by $1 billion,
and is pulling back new store openings at least through 2010.
Shares in the company fell 3 percent to $32.03.
"The consumer is more than hesitant," Chief Executive Gregg
Steinhafel said on a conference call. "They are very stressed
right now and we, like other retailers, are all struggling from
the inability ... to motivate and inspire people to come into
The results on Monday marked Target's fifth consecutive
drop in quarterly profit, and Target forecast earnings for the
current quarter that could fall below Wall Street targets as it
cuts prices to clear through poor selling merchandise.
But the latest quarter's profit was slightly better than
expected, and analysts said its forecast for the holiday season
was expected as shoppers confront tighter budgets and decreased
access to credit.
"Most people have been anticipating that retailers are
going to be taking down their numbers for the fourth quarter,"
said Stephanie Hoff, an analyst with Edward Jones "I don't
think it's that shocking."
Profit fell to $369 million, or 49 cents per share, in the
third quarter ended Nov 1, from $483 million, or 56 cents per
share, a year ago. Analysts, on average, expected earnings of
48 cents per share, according to Reuters Estimates.
Sales rose 1.7 percent to $14.6 billion as it opened more
stores. But sales at stores open at least a year, a key gauge
of a retailer's health known as same-store sales, fell 3.3
CONSUMERS AVOID CLOTHES, HOME DECOR
While Target made a name for itself selling cheap but
trendy designer clothes and home decor, its business has
faltered in the last year as shoppers shift spending in favor
of basics, like food and toiletries.
That trend has hurt Target, where discretionary merchandise
like clothes and furniture account for roughly 40 percent of
sales, and helped larger rival Wal-Mart Stores Inc. (WMT.N)
Its profits are also taking a hit as more customers fall
behind on their Target credit card payments.
Target said profitability in its credit card segment fell
83 percent to $35 million in the quarter.
Part of the decline was due to the retailer's reduced
investment in the portfolio. Earlier this year, Target sold a
47 percent interest in the business to JPMorgan Chase & Co
(JPM.N). But the decline was also caused by an increase in
shoppers becoming delinquent in payment of their credit cards.
Chief Financial Officer Doug Scovanner said he expects
write-off rates in its credit card business will increase
modestly over the next few quarters.
Scovanner said Target had temporarily suspended
"substantially all" of its share repurchase activity, and cut
its 2009 capital spending plans to $3 billion from $4 billion.
That will mean fewer new store openings in 2009 and 2010.
Last month, Target said it had canceled certain new store
projects for 2009 that no longer made financial sense. It said
it would open about 70 net new stores in 2009, down from an
earlier projection of 70 to 75 net new stores.
NOVEMBER OFF TO SLOW START
Scovanner said that in November, sales started off much
lower than expected. If Target's same-store sales for the
fourth quarter fall in the mid-single-digit range, it could
report earnings of 90 cents to $1 per share, he said.
Analysts, on average, are expecting $1.17 per share.
To win holiday sales, Target said it will meet Wal-Mart's
prices on identical items, and communicate to shoppers that its
fashionable goods do not necessarily mean higher prices.
Last week, Wal-Mart posted a nearly 10 percent rise in
quarterly profit as shoppers sought its low prices on food and
toiletries [ID:nN13360393]. Analysts say shoppers perceive
Target's prices to be higher than those at Wal-Mart.
With its stock price down roughly 38 percent in the past
year, Target is facing pressure from investor William Ackman,
who has proposed the retailer spin off a separate company that
would own the land on which its stores are built.
Target said no decision had yet been made on Ackman's
(Reporting by Nicole Maestri; Editing by Derek Caney and Gunna