Target Income Declines 7.5%

Target Corp. on Tuesday said first-quarter earnings fell 7.5 percent, due in part to disappointing sales as customers pinched pennies and shied away from discretionary purchases such as apparel.

"There's still a perception in the market that the prices at Target are higher than at others, such as Wal-Mart, which, in fact, is not true," he said. "The prices are effectively the same."

If Target looks bad compared with Wal-Mart, which posted higher first-quarter earnings and sales last week, it looks good compared with other broadline apparel retailers.

"Target's faring better than most — certainly better than any of the department stores or midpriced mass-tier stores," said Todd Slater, equity analyst at Lazard Capital Markets. "Target is faring remarkably well in a consumer-led recession in the discretionary space."

Slater said the biggest drag on consumer spending was higher oil prices. Crude oil topped $128 a barrel Tuesday.

Target also said it completed the sale of about half of its credit card receivables to J.P. Morgan Chase for $3.6 billion Monday.

That sale lessens the discounter's exposure to the volatile world of consumer lending, but also partially cuts it off from a potential profit center.

At Target's 1,613 stores, earnings before interest and taxes dipped 2.2 percent to $959 million on a 5 percent rise in sales to $14.3 billion. Comparable-store sales slid 0.7 percent.

In the credit card business, profits before interest and taxes dropped 9.6 percent to $199 million, even as revenues shot up 19.8 percent to $500 million. Bad debt expense jumped 108.8 percent to $181 million, as consumers struggled to keep up with their credit card payments.
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