Target's profit tumbles
Retailer says weak economy hurt its retail and credit card segments.
NEW YORK (CNNMoney.com) -- Target Corp. reported a nearly 24% decline in third-quarter net income Monday as the weak economy continues to weigh on consumer spending.
The Minneapolis-based retailer reported net income in the three months ended Nov. 1 of $369 million, down 23.6% from earnings of $483 million a year earlier.
Earnings per share fell nearly 14% to 49 cents from 56 cents in the same quarter a year ago.
Revenue in the quarter rose 1.7% to $14.59 billion as new-store expansion helped offset declining same-store sales.
"Our third-quarter financial results reflect the significant macroeconomic challenges facing our retail and credit card segments," said Gregg Steinhafel, Target's president and chief executive, in a statement.
Same-store sales, or sales at stores open at least a year, declined 3.3% in the quarter.
Profit from Target's credit card segment declined 83% to $35 million from $202 million last year.
Target increased the amount of money it holds in reserve for bad debt expense to $314 billion from $130 billion last year in anticipation of increased writeoffs.
Still, the weak sales and credit problems were offset by productivity gains and disciplined control of expenses and inventory, which improved the company's third quarter gross margin rate.
"As has been the theme thus far during third quarter earnings season, the company struck a very cautious tone regarding the fourth quarter," wrote Credit Suisse analyst Michael Exstein in a research note.
Looking ahead, Target said the outlook for profit growth was difficult to gauge since same-store sales growth has been volatile this year.
Fourth-quarter profit could vary between 90 cents per share to $1 per share if same-store sales decline in the "mid-single digit" percentage range, according to Doug Scovanner, Target's chief financial officer. Wall Street analysts are expecting fourth-quarter earnings of $1.22 per share.
Target has struggled to compete with Wal-Mart Stores (WMT, Fortune 500), the world's largest retailer, as wary consumers shy away from discretionary purchases amid rising unemployment and the weak economy.
"Right now the consumer is more than hesitant," Steinhafel said. "We, like other retailers, suffer from an inability to motivate consumers to come into our stores."
The results come ahead of the all-important holiday sales period which can account for half of the retail industry's profit for the year.
Steinhafel said he expects holiday season competition to be "equally, if not more, aggressive" from previous years due to a "slightly higher sense of desperation by some of the other retailers."
Meanwhile, the company also said it has temporarily suspended share buyback programs and will limit capital spending. In the third quarter, Target repurchased about 2.5 million shares of its common stock at approximately $55 a share.
"The current environment and our financial outlook have naturally reduced our appetite for investment in our business," Scovanner said in a statement. He added that the company has reduced planned capital expenditures for next year by $1 billion.
"Overall, we believe these related decisions will help to protect our liquidity and strong debt ratings as we continue to operate in a very challenging retail and credit environment," Scovanner said.
Target's financial results came after the government reported last week that retail sales in October suffered their worst decline on record.