Target to Slow Expansion as Net Falls

Discount retailer Target Corp. will curb store expansion and tighten credit-card terms after reporting fiscal-second-quarter net income fell 7.6% because of credit-card write-offs and weak sales.

The Minneapolis store chain said profit from credit-card operations fell sharply for the fiscal quarter ended Aug. 2 as a result of write-offs and the sale earlier this year of a half-interest in its credit-card receivables.

The operation, which had been delivering strong profit, reported income tumbled 65% to $74 million, from $213 million a year earlier. In May, Target sold a half-interest in its card receivables to J.P. Morgan Chase & Co. for $3.6 billion.

The company said it is slowing the growth of its credit-card portfolio and revising credit terms to counter higher bad-debt expense. Credit losses this year will run between 8% and 9% of loans, higher than its spring forecast, and higher than the 5.9% of loans in the last fiscal year.

It said growth in credit-card receivables, which increased at an about 27% rate in the second quarter, will moderate into the teens by the fourth quarter.

Target has successfully managed inventories and labor expense controls to avoid profit-sapping mark downs and expenses, Gregg Steinhafel, chief executive, told investors Tuesday. Retail gross margin, a measure of profitability, rose slightly in most areas, he said.

Net declined to $634 million, or 82 cents a share, from $686 million, or 80 cents a share, in the year-earlier quarter. Per share profit increased as a result of stock repurchases that reduced the number of shares outstanding.

Revenue rose 5.8% to $15.47 billion. Retail sales, excluding credit-card revenue, rose 5.6% to $14.97 billion, from $14.17 billion boosted by new store openings. Sales at stores open at least a year, a measure of retail-market share, declined 0.4% in the quarter.

Target, which gets about 40% of sales from clothing and home decor, has been harder hit in the downturn than discount rival Wal-Mart Stores Inc., which gets about 40% of its sales from consumables, such as groceries. Wal-Mart has reported strong same-store sales gains all year.

Doug Scovanner, chief financial officer, said Target will trim about 20 stores from its new store openings next year. Target had previously said it planned to open between 90 and 100 stores this year and next.

Economic conditions continue to be volatile. The total use of credit cards for store purchases, which had been rising, was flat in the fiscal first quarter and down in the second quarter, he said. "The use of credit cards is determining our same-store sales," Mr. Scovanner said.


Source : www.new.google.com