August 18, 2009
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News: Target's Profits Down
Target Brands, Inc. announced results for second quarter with some disappointment. Profits fell 6.4% as their credit card sector continued to experience weak sales. The decline marked the 8th consecutive quarter decline. The major retailer also increased allocations for credit card defaults. As consumers continue to reduce credit card spending, Target's total revenue fell slightly lower than expected by 2.6% to $15.07 billion while same store sales fell by 6.2%. Despite the weak sales, Target was able to recoup some of the lost revenue by increasing their gross margin to 31.9% up from the 31.2% for the previous quarter. Income for the quarter was $594 million down from $634 million same time last year.
Target's credit card division profits were down by 15% while defaults rose 19%. Delinquencies of 60 days or more rose to 5.8% up from 4.5% last year same time. Card delinquencies of 90 Days or more also rose to 4.1% up from 3.1% a year earlier. Target sales have not done well the past year as shoppers continue to seek out other discount stores like the dollar store chains and Wal-Mart. Target doesn’t stand alone in down sales; nearly every retailer in the country have been hit hard over the past year as Americans continue to deal with the rise in cost of living and record breaking unemployment. The damage has trickled down to the banks and credit card companies as consumers have found it difficult to meet monthly payments.
Target's food business has performed well which has lead them to increase their focus on the food commodity. The retailer has expanded into a wider selection of frozen foods and dairy products. Pricing strategy has also helped Target become more competitive with the discounters. A recent study of back-to-school supplies indicated that overall the retailer was less than 1% above Wal-Mart. Target has also reduced employee payroll, froze senior management raises, and reduced new credit card account openings. According to Chairman and Chief Executive, Gregg Steinhafel, the company is strategically placed to grow profits.