Target Vows It Will Be ‘Very Aggressive’ in Holiday Promotions

Target will focus on CE, toys and entertainment, which combined account for 33 percent of the chain’s holiday sales, Steinhafel said. Within CE, Target will give special emphasis to Blu-ray players, digital photo frames and videogames like Rock Band 2, Guitar Hero World Tour and Nintendo’s Wii Fit, he said. Tier one Blu-ray players are expected to hit $199 in Black Friday sales later this month, including models from Samsung and Sony, dealers said.

“Given the current environment and recognizing how challenging it is, we will be even sharper than we have in prior years,” Steinhafel said. “We are investing more of our markdowns into promotional pricing and we look to offset that in other ways by reducing either the number of items or other ways within our profit and loss statement so that the marked down investments are really net neutral.”

Target will deploy aggressive pricing as it braces for a 6 to 9 percent decline in Q4 same-store sales, company officials said. While Q3 same-store sales fell 3.3 percent, they dropped 5 percent in October and have fallen 6.9 percent so far this month, Chief Financial Officer Douglas Scovanner said. To shore up its balance sheet, Target will cut 2009 capital spending to $3 billion from $4 billion as it reduces “support” for stores opening in 2010 and beyond, Scovanner said. “We will see how long the recession turns out to be and how long it will last,” he said. If the recession turns out to be shorter than expected, Target could restore some capital spending, he said.

Target posted a 24 percent decline in Q3 earnings as net profit decreased to $369 million from $483 million a year earlier on a 2 percent rise in sales to $15.11 billion. Analysts had forecast sales of $15.24 billion. Retail gross margins improved to 30.6 percent from 30 percent, Target said. It blamed the downturn in net income on weaker results from Target’s credit card segment where income plunged 83 percent to $35 million from $202 million. That’s because Target sold a 47 percent stake in the sector to JPMorgan in May for $3 billion. It also experience a rise in bad debt expense to $314 million from $130 million a year ago. Average Q3 overall credit card receivables increased to $8.7 billion from $7.3 billion. Those directly tied to Target fell to $3.3 billion from $4.5 billion due to the JPMorgan sale.

Credit card accounts more 60 days past due rose to 5.6 percent from 3.8 percent a year ago, while those 90 days past due jumped to 3.8 percent from 2.6 percent. Credit card net writeoffs rose to $210 million from $107 million, Target said. Target created a $100 million reserve in Q3 for future write offs, Scovanner said. The chain expects “past dues” to increase “modestly” in the coming quarters, he said. “We continue to tighten all aspects of portfolio underwriting, granting fewer new accounts with lower average credit lines, aggressively reducing open credit lines on many existing accounts and pursuing more proactive collections activities,” Scovanner said.

Target also has been under pressure from activist investor William Ackman and his Pershing Square Capital Management hedge fund to spin off the land it owns into a separate, publicly traded real-estate investment trust. Ackman, whose fund owns nearly 10 percent of Target, has argued the spinoff would help raise the company’s stock price. Target owns the land under 85 percent of its 1,684 stores. Ackman, who has said he respects Target’s management, pushed the company in 2007 to sell off its credit-card receivables. In 2007, the company also initiated a $10 billion stock-buyback program, which has since been suspended due to the weak U.S. economy. Target repurchased 2.5 million shares in Q3 for $140 million.