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Target Profit Falls as Consumers Stick to Basics

Reuters
Tuesday, 26 Feb 2008 | 8:39 AM ET

Target reported a more than 8 percent drop in quarterly profit Tuesday after shoppers spurned purchases of higher-margin merchandise like clothes in favor of necessities like food.

Target
Paul Sakuma
Target

"Our financial performance in 2007 fell short of our expectations as the pace of sales and earnings slowed considerably in the second half of the year," said Bob Ulrich, chairman and chief executive officer, in a statement.

Target , the No. 2 U.S. discount retailer behind Wal-Mart Stores Inc, said profit fell to $1.028 billion, or $1.23 per share for its fiscal fourth quarter ended Feb. 2, from $1.119 billion, or $1.29 per share, a year earlier.

Analysts, on average, had been expecting it to earn $1.22 per share, according to Reuters Estimates.

Target's results come a week after Wal-Mart posted a better-than-expected 4 percent rise in its fourth-quarter earnings, as cash-strapped shoppers headed to its U.S. stores in search of cheaper groceries.

Target's sales had been outpacing those at Wal-Mart, but they have faltered in recent months as its shoppers, worried about the weakening U.S. economy, have pulled back on purchases of clothes and jewelry, hurting Target's profit margins.

Target had warned that its fourth-quarter earnings per share would decline compared with a year earlier.

Sales rose 0.4 percent to $19.34 billion from $19.27 billion. Its sales at stores open at least a year, a key retail gauge known as comparable-store sales, inched up 0.2 percent.

Its credit card revenue jumped almost 21 percent to $532 million from $441 million.

Target is in the process of determining whether to sell its credit card receivables. It has said it will announce a decision on possible alternative ownership structures for the business, which includes the Target Visa Card and Target Credit Card, in the first calendar quarter of 2008.

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