MINNEAPOLIS (AP) - Discount retailer Target Corp. said Tuesday that third-quarter earnings dipped 4 percent, missing Wall Street forecasts, because of weak sales in high-margin categories such as clothing and home furnishings.
Target also said its board has authorized a new $10 billion share buyback program that at current prices would cover 20 percent of its outstanding shares. Target said the buyback would be funded partially by additional debt.
Third-quarter earnings fell to $483 million, or 56 cents per share, from $506 million, or 59 cents per share, in the prior year.
Quarterly sales grew 9 percent to $14.84 billion, from $13.57 billion in the third quarter of 2006.
Analysts surveyed by Thomson Financial forecast earnings of 62 cents per share on revenue of $14.83 billion. The earnings estimates typically exclude one-time items.
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Target shares fell $1.35, or 2.5 percent, to $52.55 in premarket trading.
"Our third quarter earnings were disappointing due to soft sales in our higher margin categories, leading to lower-than-expected gross margin in our core retail operations," said Chairman and Chief Executive Bob Ulrich.
Quarterly same-store sales increased 3.7 percent. Same-store sales, or sales at stores open at least a year, is a key indicator of retailer performance since it measures growth at existing stores rather than newly opened ones.
Target said it expects to complete the new share repurchase by the end of 2008. Despite using debt to fund some of the repurchase, Ulrich said the buyback would still allow Target to "maintain our strong investment-grade debt ratings within a prudent range while allowing for substantial value to be returned to our shareholders."
Target seemed to rule out selling its credit-card operations, which it expects to contribute $600 million to full-year earnings. It has been considering what to do about its credit card receivables since September.
On Tuesday, Chief Financial Officer Doug Scovanner said: "At this point in the review, it is clear that if a transaction occurs, it would involve sharing a meaningful portion of our future pre-tax credit card contribution with a new partner." Either way, though, he said "we remain committed to maintaining our core financial services operation."
The company said a final decision would be made by the end of next month.
For the first nine months of the year, Target earned $1.82 billion, or 2.11 per share, up 9 percent from $1.67 billion, or $1.92 per share, during the same period last year. Revenue rose 9.3 percent to $43.5 billion, from $39.78 billion a year ago.
