Target Trails Wal-Mart as Holiday Push Begins

Third-Quarter Profits Drop 24%, Sales Down 3% Despite Stress on Value Message

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NEW YORK ( -- Despite the emphasis on the latter half of its "Expect More. Pay Less" tagline, Target continues to lag rival Wal-Mart. The retailer has been vocal about its intent to be a price leader, but consumers still don't appear to be buying it.
Target is having a tough time persuading consumers to snap up its trendy wares.
Target is having a tough time persuading consumers to snap up its trendy wares. Credit: AP

The company today said that third-quarter profits plummeted 24%, while sales at stores open at least a year dipped 3%. By contrast, Wal-Mart last week said earnings rose 7%, while same-store sales edged up 3%.

Target has repeatedly said that its pricing on identical items will be the same as Wal-Mart's in markets where they compete. Executives reiterated that would be the case headed into what has already become an intensely promotional holiday season.

Aggressive holiday
"We expect this holiday to be equally, if not more, aggressive than prior holiday seasons," said Gregg Steinhafel, president-CEO, during a conference call with analysts. "I think there is, and will be, perhaps a slightly heightened sense of desperation by some of the other retailers. So our approach typically has been and will continue to be that we will meet Wal-Mart on all like and identical items in local markets. That commitment has not changed."

Mr. Steinhafel predicted Target, along with Wal-Mart and Costco, would be "big winners" during the all-important holiday season.

"We recognize that some of our other retail competitors may not emerge intact from the current economic turmoil," he said. "While we do not celebrate the misfortune of others in our industry, we believe that our smaller competitive set would be to our benefit when the economy improves."

No definitive forecast
However, Target, like many retailers in this environment, avoided giving a definitive forecast for the fourth quarter. Douglas Scovanner, exec VP-chief financial officer, only outlined what earnings would look like if same-store sales declined by mid-single digits. Wal-Mart expects same-stores sales to rise between 1% and 3% in the fourth quarter.

"While we're working in earnest to drive stronger performance, it doesn't seem prudent to reflect stronger assumptions in an outlook at this time," he said. "Obviously, given the volatility of recent trends, it's possible that sales and operating performance could lead to results that would fall short of these figures."

Trading down
Target is having a tough time persuading consumers to snap up its trendy wares. Kathee Tesija, exec VP-merchandising, noted that consumers are continuing to trade down, for example, from a duvet to a comforter. Target's house brands, however, are performing well, which she says is likely attributable to a trade down from national brands.

"Right now the consumer is more than hesitant," said Mr. Steinhafel. "They are very stressed right now, and we, like other retailers, are all struggling from the inability ... to motivate and inspire people to come into our stores."

The retailer's credit-card portfolio also dragged down earnings, as consumers fall behind on their Target credit-card payments. Target said profitability in that segment fell 83%. That steep decline is in part due to the sale of 47% of the business to JPMorgan Chase earlier this year.
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