Target says profits dipped 7.6% in second quarter

NEW YORK - No. 2 U.S. discount retailer Target Corp. said its second-quarter profit fell 7.6 percent as more consumers were delinquent on credit card payments and cut back their spending on apparel and other discretionary items.

The company said that while Wall Street's full-year consensus forecast of $3.43 a share was within a reasonable range, it felt more comfortable seeking to achieve analysts' fourth-quarter estimate than meeting their projection for the third quarter.

Erratic and volatile back-to-school sales trends since the start of August have also made it hard to make a near-term projection, executives said on a conference call.

Target said it is cutting its capital spending by $1 billion over this year and next, as new store openings will decline to as many as 75 next year from up to 95 this year, the company said.

The reduction was partly due to shopping-center developers' inability to access financing amid the credit market downturns, the company said.

"The current environment is the harshest we have seen in many years, and with inflation growing at its fastest pace in almost two decades, we do not see any indication of meaningful near-term improvement," Chief Executive Gregg Steinhafel said during the conference call.

Net income in the quarter ended Aug. 2 fell to $634 million from $686 million a year earlier.

However, per-share profit rose to 82 cents a share from 80 cents after the number of shares outstanding declined.

Total revenue, including that from credit cards, climbed 5.8 percent to $15.5 billion, helped by new store openings. On a same-store sales basis, they declined 0.4 percent as comparable traffic declined in discretionary categories such as apparel and home merchandise, which account for over 40 percent of Target's sales.

Target was expected to earn 76 cents a share with sales of $15.5 billion, according average projections from analysts surveyed by FactSet.

Analysts had lowered their estimates after Target said in May that its second-quarter profit may miss the then-consensus projection of 79 cents a share and that sales growth will likely remain soft before seeing some pick-up toward the end of the year.

Target has been hurt by its heavier exposure to discretionary merchandise compared to larger rival Wal-Mart Stores, as shoppers are confining more of their spending to essential items and as many believe Target charges more for similar products than does Wal-Mart, analysts said.