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.

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