Feb. 24 (Bloomberg) -- Target Corp., the second-largest discount chain, said profit fell 41 percent, the sixth consecutive quarterly decline, after it cut prices over the holidays and set aside more money for unpaid credit-card balances.

Net income dropped 41 percent to $609 million, or 81 cents a share, the Minneapolis-based retailer said today in a statement. The average of 18 analysts’ estimates compiled by Bloomberg was 83 cents. Target said Feb. 5 that profit would be “somewhat lower” than a consensus estimate of 86 cents a share.

Earnings before interest and taxes in Target’s retail segment are likely to be lower in the first half of 2009 than in the year-earlier period, Chief Financial Officer Douglas Scovanner said during the company’s earnings call today.

Scovanner also predicted a “mid-single-digit” drop in sales on a percentage basis at stores open at least a year for the first half. Fourth-quarter same-store sales fell 5.9 percent as shoppers cut back on unnecessary purchases for their homes and wardrobes. The retailer, known for affordable designer goods, also faced increased competition from department stores that discounted heavily to lure cash-strapped shoppers.

“Target went from being in a great spot to a tough spot almost overnight,” said David Abella, a portfolio manager at Rochdale Investment Management in New York, with $2 billion in assets including Target shares. “They are a retailer that fires on all cylinders in a better economy.”

Discounts Elsewhere

Target fell 60 cents, or 2.1 percent, to $27.83 at 4:01 p.m. in New York Stock Exchange composite trading. The stock has declined 19 percent this year.

Discounts at department stores and Wal-Mart Stores Inc. siphoned some sales from Target, Robert Drbul, an analyst at Barclay’s Capital in New York, said today in a telephone interview. He rates the shares “overweight/neutral.”

“Target has a very loyal consumer, but Wal-Mart clearly has been winning the market-share game,” Drbul said.

Revenue, including credit-card income, fell 1.6 percent to $19.6 billion. In the year-earlier quarter, net profit was $1.03 billion, or $1.23 a share.

The credit-card division posted a $135 million pretax loss in the fourth quarter, which ended Jan. 31, because of additions to Target’s allowance for doubtful accounts. The unit had a $189 million profit a year earlier. Target sold almost half of its credit-card portfolio to JPMorgan Chase & Co. last year.

‘Eye-Opening’ Loss

“Given that they do have a little bit of a higher-quality portfolio, the level of the loss was a little bit eye-opening,” Rochdale’s Abella said in a telephone interview.

Write-offs should stabilize at about $300 million in each of the next two quarters, Scovanner said during the call.

Target has cut jobs and inventory levels to reduce expenses. After its holiday clearance, Target “is in a great position” with inventory levels, Chief Executive Officer Gregg Steinhafel said on the call.

Target said last month it’s eliminating 9 percent of its headquarters workforce, cutting about 600 employees and 400 open positions, and closing an Arkansas distribution center employing 500 people. It also suspended raises for executives and stopped share buybacks.

Larger Wal-Mart reported on Feb. 17 that fourth-quarter profit fell 5.5 percent to $3.79 billion, a smaller drop than analysts estimated, after discounts on groceries and drugs drew shoppers. Comparable-store sales excluding fuel rose 2.8 percent.

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

Last Updated: February 24, 2009 16:12 EST