Target Corp said on Tuesday profit fell nearly 41 percent, worse than Wall Street expected, as consumers pared spending on its fashionable clothing and fell behind on payments for Target credit cards.
By Nicole Maestri
The results, which mark Target's sixth consecutive drop in quarterly profit, come as its shoppers shift spending in favor of basics like food and toiletries instead of buying its trendy home decor, jewelry and clothing.
That trend has hurt Target, where discretionary merchandise like clothes and furniture account for roughly 40 percent of sales. Larger rival Wal-Mart Stores Inc has benefited from the shift to basics, and last week said it should outperform other retailers in the recession.
Target's shares fell 1.8 percent, while Wal-Mart advanced 0.4 percent.
"The company faces a number of challenges on many different fronts -- merchandising, how to utilize square footage, how to compete, how to increase sales incentives," said Richard Hastings, consumer strategist with Global Hunter Securities. "The current fiscal year should be viewed very cautiously."
The discount retailer said net income fell to $609 million, or 81 cents per share, for the fiscal fourth quarter ended January 31, from $1.028 billion, or $1.23 per share, a year ago.
Analysts, on average, had been expecting it to earn 83 cents per share, according to Reuters Estimates.
Target said quarterly sales declined 1.6 percent to $19 billion from $19.3 billion a year ago. Sales at stores open at least a year, a key gauge of a retailer's health known as same-store sales, dropped 5.9 percent.
Target said it cut prices to spur sales in the quarter, and customers gravitated toward buying more lower-margin, non-discretionary items, like food or household cleaners.
Its profits are also being hit as more customers default on their Target credit card bills.
Target's credit card segment reported a pre-tax loss of $135 million, compared with profit of $189 million a year ago. It said the loss was due to a $245 million addition to the allowance for doubtful accounts.
(Reporting by Nicole Maestri, editing by Dave Zimmerman)
NEW YORK (Reuters)