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Reuters - Target Corp reported a nearly 8 percent drop in quarterly profit on Tuesday as shoppers passed over trendy clothes and home decor in favor of everyday necessities, hurting its margins.

By Nicole Maestri

Target Corp (TGT.N) reported a nearly 8 percent drop in quarterly profit on Tuesday as shoppers passed over trendy clothes and home decor in favor of everyday necessities, hurting its margins.

The No 2 U.S. discount chain behind Wal-Mart Stores Inc (WMT.N) said profit was $634 million for its second quarter that ended August 2, down from $686 million a year ago. Earnings per share rose to 82 cents from 80 cents, boosted by fewer shares outstanding in the quarter.

Analysts, on average, had been expecting it to earn 76 cents per share, according to Reuters Estimates.

The second quarter marked the fourth straight quarterly profit decline for Target as its shoppers, who once splurged on its cheap but chic cashmere sweaters or metallic handbags, pulled back on spending.

Target's shares fell about 1.8 percent in morning trading.

Last week, Wal-Mart reported a 17 percent jump in second-quarter profit as bargain-hunting consumers scoured its stores for food, medicine and electronics.

"Wal-Mart has staked out the position with its 'Save Money. Live Better' tagline ... that they are the king of low prices," said Craig Johnson, president of retail consulting firm Customer Growth Partners.

To compete, Target needs to go beyond advertising its stylish merchandise and incorporate the message that "we'll save you money and we'll help your family make it through these economic times," he said.

To improve results, Target has focused more on items such as food or medicine that bring shoppers in more frequently. It is also putting a bigger emphasis on the "Pay Less" side of its "Expect More. Pay Less." tagline.

But Target has said it does not intend to significantly change its strategy due to the current economic climate.

SOFT SALES

Target also said it saw soft sales trends in the quarter. Its retail sales, excluding credit-card revenue, rose almost 6 percent to $14.97 billion from $14.17 billion. Sales at stores open at least a year, a key retail gauge known as same-store sales, slipped 0.4 percent.

Its second-quarter gross margin rate declined from last year, driven by faster sales growth in lower-margin merchandise, the company said.

Quarterly credit card-revenue rose more than 10 percent to $501 million.

Earlier this year, Target completed the sale of a 47 percent interest in its credit card business to JPMorgan Chase (JPM.N) for an initial investment of $3.6 billion.

It said the deal would allow it to fund its business plans, including its share repurchase program, without having to access debt markets again this year.

In its latest quarter, Target repurchased 33.8 million shares of its common stock, which it has been buying back as part of a $10 billion share repurchase plan announced last year.

Target shares fell 78 cents to $49.27 in early New York Stock Exchange trading.

(Editing by Maureen Bavdek)