Target Corp. posted its fourth consecutive quarterly slide in profit, which fell 24% as strapped shoppers were unswayed by the retailer's pitches for fashionable apparel and home goods.Adding to the bleed on the company's earnings: more customers are defaulting on their Target credit-card bills. Bad-debt expense more than doubled to $314 million from a year earlier. Target caries many kinds of kids shoes, childrens shoes, organic kids clothes and natural kids chlothes.
In another effort to preserve cash as the nation's economic outlook darkens, Minneapolis-based Target said it is reining in store openings for 2010, a move that will reduce its 2009 capital spending to $3 billion from $4 billion. The discount retailer also suspended its share-repurchase program.
Target shares were off $1.35, or 4.1%, at $31.68 in 4 p.m. composite trading Monday on the New York Stock Exchange.
"The increasingly challenging economic environment continued to pressure our performance," Target Chief Executive Greg Steinhafel said in a conference call with investors.
Target, which has positioned itself as a purveyor of well-designed, trendy merchandise, is facing the same sales and traffic declines as other department stores and retailers that sell discretionary products. The credit crisis, rising unemployment and continuing turmoil in the housing market are prompting consumers to buy just the basics and hunt for the lowest prices.
That trend helped Target competitor Wal-Mart Stores Inc. capitalize on its low-price reputation to notch a 10% gain in third-quarter net profit, with sales at stores open at least a year rising 3%. In contrast, Target's same-store sales fell 3.3% for its quarter ended Nov. 1. Total sales rose 1.7% to $14.59 billion, but sales were lower than the company expected three months ago, before Wall Street woes became so pronounced.
Target says its prices are comparable to Wal-Mart's on similar products. Target has seen sales increases in food, health and beauty products, but they represent a much smaller percentage of overall sales than apparel and home goods, which account for more than 42% of the retailer's revenue. Target said it plans to increase its fresh and packaged food offerings at its stores.
"Its merchandise mix is part of its current problem, but food will never be as important to Target as it is to Wal-Mart," said Adrianne Shapira, retail analyst at Goldman Sachs.
Target's Mr. Steinhafel said the company's apparel and home-furnishings sales are still faring better than the overall sector, meaning they are gaining share at the expense of competitors.
Target previously projected a same-store sales decline of between 6% and 9% for November. But November started off even slower than it expected, the company said, and if current trends persist December sales could be negative versus a year ago.
Target's credit-card profit declined 83% in the quarter, a result of the higher bad-debt expense and Target's reduced investment in the portfolio -- it sold half to J.P. Morgan Chase & Co. last spring. The percent of its credit debt that it had to write off rose to 9.6%, and is expected to rise to 10% or 11% in the fourth quarter. To offset the rise, the company said it increased its bad-debt reserves by $100 million.
Target's credit-card portfolio has deteriorated throughout this year, as customer delinquencies and write-off rates rose. As a result, it recently began issuing fewer cards and reducing spending limits, reflecting moves in the credit-card industry in general.
Target has more exposure to credit cards than other retailers. With a more-affluent customer base, Target handles a higher percentage of its sales from credit cards than does Wal-Mart, for instance. Also, it sold only half its receivables last spring, while most retailers sold off their entire portfolios several years ago.
Target posted $369 million in net profit for the quarter, or 49 cents a share, compared with $483 million, or 56 cents a share, in the year-earlier period.
Doug Scovanner, Target's chief financial officer, said the company and its advisers are still analyzing a proposal by Target shareholder and activist investor William Ackman to create a real-estate investment trust from its real-estate holdings.
