5:00AM New York - Target Corporation third quarter earnings fell 4.5% on disappointing sales on high-margin merchandise.

Target Corporation (TGT: chart) third quarter revenue increased 9.3% to $14.83 billion from $13.57 billion in the year ago quarter.

Same-store sales increased 3.7% with higher contribution from new stores and credit card operations.

Revenue from credit card operations gained 19% to $493 million from $414 million in the corresponding period in 2006.

The discount retailer said net earnings in the third quarter slipped 4.5% to $483 million from $506 million a year earlier. Earnings per share fell 5.1% to 56 cents per share from 59 cents per share last year. Analysts surveyed by Thomson Financial had forecast earnings of 62 cents per share on revenue of $14.83 billion.

Target stock dropped 4.1% or $2.21 to $51.69 after the earnings release on the short fall.

For the quarter, earnings before interest and income taxes rose marginally to $958 million from $957 million.

Chief executive and chairman, Bob Ulrich said the below forecasts earnings were the result of disappointing sales on high-margin products such as clothing and home furnishings.

Credit card operations chipped in with $157 million to EBIT, up 17.1% from prior year. The increase was driven by strong revenue growth, offset by higher bad debt expense.

Average receivables in the third quarter increased 19.6% from a year ago, partially driven by a product change from proprietary Target Cards to higher-limit Target Visa cards for a group of higher credit-quality Target Card customers.

Net interest expense increased $28 million compared with the third quarter in 2006 primarily due to higher average debt balances, including the debt to fund growth in accounts receivable.

In the nine months ending on November 3rd, Target Corp reported net revenue increase of 9.3% to $43.49 billion from $38.60 billion last year. Earnings gained 9.1% to $1.82 billion or $2.11 per share from $ 1.66 billion or $1.92 per share posted in the same period a year ago.

Target said it might not sell its credit card operations, which it expects to contribute $600 million to full-year earnings. Target has been reviewing its strategic operations with the credit card division.
Chief financial officer, Doug Scovanner said, """"at this point in the review, it is clear that if a transaction occurs, it would involve sharing a meaningful portion of our future pre-tax credit card contribution with a new partner.

""""As a result, we are continuing to evaluate whether the benefits of a potential transaction outweigh its expected dilutive impact on earnings per share. Regardless of the outcome, we remain committed to maintaining our core financial services operation.""""

In the quarter, Target said its board had authorized a new $10 billion share repurchase scheme, replacing the previous authorization, representing nearly 20% of total outstanding share repurchase. Debt will partially be used to fund the program.

The company acquired 3 million shares for $172 million in the quarter bringing the total for the nine months to $1.2 billion spent on 19.7 million ordinary shares. Since the share-repurchase program started in 2004, Target Corp has acquired 90.7 million shares for $4.6 billion.

Target Corp said on a conference call that fourth quarter same-store sales growth is estimated to rise between 3% and 5%. Net earnings are expected to rise ahead of the third quarter and earnings per share are not expected to rise faster than last year''s 22% growth.

Target stock (TGT: chart) has traded lower in the last two weeks and recently dropped as low as $51.25 before the earnings release. In the last 52-weeks, the stock has touched a high of $70.75, and a low of $50.25.

At the end of the third quarter, Target Corporation operated 1,591 Target stores in 47 states.