Aug. 19 (Bloomberg) -- Target Corp., the second-largest U.S. discount retailer, said profit fell for the fourth straight quarter after consumers cut purchases of its most profitable clothing and home goods.

Second-quarter net income declined 7.6 percent to $634 million, or 82 cents a share. The profit beat analysts' estimates by 6 cents because Target reined in costs.

Sales at stores open more than a year dropped for the second quarter in a row, signaling that Target isn't keeping pace with Wal-Mart Stores Inc. while the slumping economy drives consumers to discounters. Wal-Mart said last week that tax-rebate checks helped drive so-called same-store sales up 4.5 percent in the quarter.

``Right now they're just having to buckle down and figure out how to compete against Wal-Mart in a slowing market,'' said David Abella, a portfolio manager at Rochdale Investment Management in New York with $2.5 billion in assets, including shares of both retailers.

Target fell 33 cents to $49.72 at 4 p.m. in New York Stock Exchange composite trading. Target is little changed this year compared with a 22 percent gain for Wal-Mart.

Revenue increased 5.8 percent to $15.5 billion in the quarter. Net income a year earlier was $686 million, or 80 cents a share.

The average second-quarter estimate of 20 analysts surveyed by Bloomberg was 76 cents a share.

`Likely Outcomes'

For the full year, Chief Financial Officer Douglas Scovanner called a consensus estimate of $3.43 ``within a reasonable range of likely outcomes.'' The average estimate of 20 analysts surveyed by Bloomberg is $3.42.

Scovanner said he's ``more comfortable in our ability'' to meet fourth-quarter earnings expectations than in the current quarter. Target will benefit from easier sales comparisons, its share repurchase program and new terms for its credit-card holders later in the year, he said during a call today with analysts and investors.

Target has completed $4.7 billion of a $10 billion stock buyback program announced in November.

Customers coping with higher food and fuel prices, rising joblessness and the worst housing market since the Great Depression have curtailed purchases of non-necessities while seeking bargains on what they do buy. That's benefited Wal- Mart, its Sam's Club warehouse unit and Costco Wholesale Corp., the largest U.S. warehouse club by sales.

Low Prices

``We do not see any indication of meaningful near-term improvement,'' Chief Executive Officer Gregg Steinhafel said on the call.

Target executives said that outlook has led the retailer, known for fashionable clothing, to emphasize its low prices.

The retailer has still lost customers to Wal-Mart during the slowdown, Abella said.

``You don't think to go there if you think, `Hey, I really need to save money this month.' Wal-Mart comes to mind first,'' he said.

Scovanner called back-to-school sales so far ``volatile.''

Target said it will reduce new store openings next year, to as many as 75 from up to 95 in 2008. As sales slowed, Target limited mark-downs and store salaries to control costs.

Selling, general and administrative expenses amounted to 20.9 percent of sales, compared with 21.5 percent a year ago. The level was lower than some analysts' estimates, including J.P. Morgan Securities Inc. analyst Charles Grom.

Narrowing Margins

Target's profit on goods sold shrank as customers bought more groceries and other staples, which have lower mark-ups than clothing and home goods.

Gross profit, or the percentage of sales left after subtracting the cost of goods sold, narrowed to 31.17 from 31.56.

The slowdown also has pressured Target's credit-card holders, resulting in more late and missed payments.

Credit-card profit in the quarter fell 65 percent to $74 million. Bad debt expense more than doubled to $256 million from $95 million.

Target completed the $3.6 billion sale of 47 percent of its credit-card loans to JPMorgan Chase & Co. in May.

Wal-Mart said last week second-quarter profit climbed 17 percent to $3.45 billion, or 87 cents a share, beating analysts' estimates.

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net.

Last Updated: August 19, 2008 16:20 EDT