Target Corp. and Lowe's Companies both reported profit declines of 24 percent Monday, amid a sharp pullback in consumer spending.
Target also said that weak results from its credit-card segment contributed to its drop in earnings. For the three months ended Nov. 1, the discount retailer's profit fell to $369 million, or 49 cents per share, from $483 million, or 56 cents per share, last year. That was just above the average of 48 cents per share predicted by analysts polled by Thomson Reuters.
Revenue rose 2 percent to $15.11 billion from $18.4 billion last year, falling short of the $15.24 billion analysts expected.
Lowe's, the second-largest home improvement retailer, cut its full-year forecast as the deepening economic crisis led homeowners to put off big-ticket purchases.
The retailer also forecast profit for the current quarter below Wall Street estimates, saying rising unemployment, falling home prices and tight credit would continue to pressure its business.
Target struggles to sell trendy nonessentials
The U.S. retail sector has been hit hard as consumers pull back on spending amid a deteriorating economy and shaky job market. Discounters such as Target and its chief rival, Wal-Mart Stores Inc., have benefited somewhat as consumers trade down and hunt for bargains, but Target has been helped less by this trend since more than 40 percent of its revenue coming from nonessential such as trendy fashions and housewares.
Chief Executive Gregg Steinhafel said in a statement that the results "reflect the significant macroeconomic challenges facing our retail and credit-card segments."
Sales were helped by new-store expansion, but that was offset by sales in stores open at least one year, which fell 3.3 percent during the quarter.
Profit in its credit-card business fell 83 percent to $35 million from $202 million last year, because of Target's lower investment in the portfolio, a decline in the portfolio's overall performance because of higher bad-debt expenses and lower interest rates.
The company sold 47 percent of its credit card receivables to JPMorgan Chase in May.
Target said it cut its 2009 expected capital expenditures by $1 billion.
"The current environment and our financial outlook have naturally reduced our appetite for investment in our business," Chief Financial Officer Doug Scovanner said in a statement.
Lowe's big-ticket items hinge on credit
Jon Fisher, a portfolio manager with Fifth Third Asset Management, said Lowe's poor outlook was no surprise as a pullback in consumer spending hurts all retailers.
"Retail's tough," Fisher said. "A portion of the merchandise Lowe's sells is big-ticket that has to be financed with credit. There's just no credit available and consumers aren't in a position to be borrowing money."
Lowe's earned $488 million, or 33 cents a share, in its fiscal third quarter, ended October 31, down 24 percent from $643 million, or 43 cents a share, a year earlier.
Analysts had expected 28 cents a share, according to Reuters Estimates.
Sales rose 1.4 percent to $11.7 billion. Sales at stores open at least a year, an important retail measure, fell 5.9 percent.
Lowe's and industry leader Home Depot have posted weak results and cut their store growth as the U.S. housing slump and tight credit curtail demand for home improvement projects and big-ticket goods such as appliances.
‘People are going to have to start saving some money’
The third quarter marked the fifth-consecutive quarterly profit fall for Lowe's, and Home Depot is expected to report its ninth-straight decline in quarterly profit on Tuesday.
"People are going to have to start saving some money, and that means retailers are going to suffer," Fisher said. "There's a big disincentive to be spending money right now, holidays or no holidays."
Lowe's said sales weakness in the last week of October continued into November as economic conditions worsened.
"We expect continued, broad-based external pressures on our industry, as rising unemployment, falling home prices, tight credit and volatile equity markets continue to erode consumer confidence and impact sales," Lowe's Chairman Robert Niblock said in a statement.
The Mooresville, North Carolina, retailer said it now expects profit of $1.46 to $1.54 a share for the full year, down from a forecast of $1.48 to $1.56 a share it stood by in September. A year earlier, Lowe's earned $1.86 a share.
Lowe's said it expects earnings of 8 cents to 16 cents a share for the current fourth quarter.
Analysts expected profit of 18 cents and $1.51 a share for the fourth quarter and full year, according to Reuters Estimates.
Lowe's shares were off in pre-market trading to $17.60 from their Friday close of $18.23 on the New York Stock Exchange.