Target Profit Falls, Hurt by Wary Shoppers

Target reported a 7.5 percent decline in quarterly profit Tuesday as shoppers passed over clothes and jewelry in favor of basics like food, hurting the retailer's margins.

The No. 2 U.S. discount chain behind Wal-Mart Stores 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.

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

But as the U.S. economy has faltered, so too have Target's sales, particularly of higher-margin items, as shoppers forgo purchases of new clothes and home furnishings to concentrate on necessities.

Sales rose 5 percent to $14.3 billion. Sales at stores open at least a year, a key retail gauge known as same-store sales, fell 0.7 percent.

Target said its first-quarter gross margin rate declined from last year, driven by faster sales growth in lower-margin merchandise.

Quarterly credit card revenue rose almost 20 percent to $500 million. Earlier this month, Target said it would sell a 47 percent interest in its credit card business to JPMorgan Chase for an initial investment of $3.6 billion.

It said the deal would allow it to fund its business plans, including its share repurchase program, without having to access debt markets again this year. In its latest quarter, Target repurchased 30.5 million shares of its stock.

The retailer has been buying back shares as part of a $10 billion share repurchase plan announced in November.

Its stock has fallen almost 6 percent in the past year through Monday, while Wal-Mart is up 19 percent and the Standard & Poor's Retail Index is down 21 percent. Target shares rose 0.1 percent to $55.00 in premarket trading.

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