Profit down at Target
Retailer exceeds expectations, but weakness in credit card sector, shift in sales to less profitable goods lead to 7.6% drop in income.
NEW YORK (CNNMoney.com) -- Target Corp.'s second-quarter profit slipped as the discount retailer faced more frugal consumers and difficulties in its credit card business, the company said Tuesday. But the results still managed to beat analysts' estimates.
Target (TGT, Fortune 500) shares fell 0.6% to $49.75 to close Tuesday.
The 1,500-store retailer posted net income of $634 million, or 82 cents per share, for the quarter ended Aug. 2 , down 7.6% from $686 million, or 80 cents per share, a year earlier.
The company said revenue rose to $15.47 billion, an increase of 5.8% from the same period last year.
Analysts polled by Thomson Reuters had expected the company to earn 76 cents per share on revenue of $15.46 billion.
However, sales at stores open at least a year - a key measure of performance known as same-store sales - fell 0.4%.
Gregg Steinhafel, Target's CEO, said in a statement that second quarter earnings exceeded the company's expectations, although he noted "soft sales trends" working against the retailer.
He said the Minnesota-based company will focus on "continuing to delight our guests with differentiated merchandise at a compelling value."
Target said shoppers are purchasing lower-margin items, such as groceries and basic staples, and skipping higher-margin goods, such as clothing and home furnishings. The gross margin rate fell in the quarter to 31.6% from 31.2%.
Profit in Target's credit card segment fell 65% from the same period last year, in the face of increased write-offs, additions to the reserve for future periods and lower interest rates. Target recently sold a stake in its credit-card receivables to JPMorgan Chase & Co (JPM, Fortune 500).
As profit slipped at Target, rival Wal-Mart Stores Inc. (WMT, Fortune 500) posted greater-than-expected earnings and raised its profit forecast for the fiscal year. The nation's largest retailer benefited from the stimulus boost, drawing in customers by cashing 2.9 million checks for free.
Analysts polled by Thomson Reuters expect Target to earn $3.42 per share on revenue of $67.1 billion for the year ending in January 2009. 
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