Target profit falls almost 24 percentt, suspends buybacks

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By Nicole Maestri

NEW YORK (Reuters) - TARGET (TGT.NY)Corp 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.

While the results on Monday marked Target's fifth consecutive drop in quarterly profit, they were slightly better than the average Wall Street forecast. Shares rose 1 percent to $33.43 in early trading.

"That is a little bit of a relief rally because they have not disappointed on the headline earnings, and it's been such a difficult quarter, especially for them," said Patricia Edwards, a retail consultant with Storehouse Partners LLC.

"The big test is going to be what they say on the (conference) call as far as guidance and what happens going forward from there," she added.

Target, which also said it had temporarily suspended nearly all of its share buybacks and cut capital spending to help protect its debt ratings, typically comments on its forecast for the current quarter during its conference call with analysts set for later on Monday.

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 percent.

While Target made a name for itself selling cheap but trendy designer clothes and home decor, its business has faltered in the past year as shoppers shift spending in favor of basics, like food and toiletries.

Its profits are also taking a hit as more customers fall behind on payments of their Target credit cards.

In contrast, rival Wal-Mart Stores Inc posted a nearly 10 percent rise in quarterly profit last week as shoppers sought its low prices on food and toiletries. Analysts say shoppers perceive Target's prices to be higher than those at Wal-Mart.

CREDIT CARD PROFITABILITY PLUNGES

Target said profitability in its credit card segment fell 83 percent to $35 million from $202 million.

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 . But the decline was also caused by an increase in shoppers becoming delinquent in payment of their credit cards.

To protect its liquidity and its debt ratings, Chief Financial Officer Doug Scovanner said in a statement that Target had temporarily suspended "substantially all" of its share repurchase activity, and has also cut its 2009 capital expenditure plan by about $1 billion.

Last month, Target said at its analyst meeting that it had cut its 2009 store opening plans by canceling projects that no longer made financial sense. It said it would open about 70 net new stores in 2009, down from an earlier projection that it would add about 70 to 75 net new stores.

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.

(Reporting by Nicole Maestri; Editing by Derek Caney)

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