Target's Wild Aim

I may have noted that Target (NYSE: TGT  ) didn't miss last quarter, but it wasn't so fortunate this time around; its profit decreased and it missed analysts' expectations.

Target's third-quarter net income decreased 4.4% to $483 million, or $0.56 per share. Total revenue increased 9.3% to $14.84 billion, and Target had a 3.7% increase in same-store sales in the quarter. The company pointed to soft sales of higher-margin products, like apparel and home goods, as part of the reason for the profit shortfall.

That's not surprising: Given the housing slowdown, many companies have complained of a negative effect on home furnishings and decoration. Furthermore, many retailers suffered a cruel October, and apparel has been a weak category lately.

Target also announced a $10 billion share buyback. Investors might be wary; Target's going to increase its debt to do this. (As of now, Target's got just $627 million in cash, and $11.2 billion in long-term debt.) Does it make sense for companies to pay interest to buy back shares? Although I know Target is financially healthy, and many investors have no problem when companies tinker with capital structure, it often makes me uneasy. A common problem with this kind of plan would be if business slows down, and I'd rather see conservative strategies when we could very well be facing a recession.

In an interesting aside, Target said that despite current perceptions (probably referring to concerns about consumer weakness, and of course heavy coverage of Wal-Mart's (NYSE: WMT  ) aggressive price cuts), it's not seeing much sign of any change in customer traffic and transactions. Target's management said in the earnings conference call that it's "cautiously optimistic that overall we're going to have a decent holiday season."

I have definitely tended to be long-term bullish on Target. Like Costco (Nasdaq: COST  ) , it appeals to a generally financially healthy customer demographic, and that really does imply that it can do well in many different economic scenarios. Its merchandise expertise is incredibly impressive, and it still has a great deal of growth ahead of it (compare its total store count with Wal-Mart and you'll see what I mean). These are among the reasons I like the stock far more than Wal-Mart.

Am I changing my mind now? Not exactly, but I'm feeling like maybe it's a good time to go into wait-and-see mode on this one.

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