Has the time come for Target (TGT) - Get Report to sell off its struggling Mervyn's and Marshall Field's divisions?

That's what investors and analysts may be wondering after the nation's third-largest retailer reported its July sales on Thursday. Although sales at the company's core namesake stores met expectations, Target's overall sales were slowed by continuing problems at those two chains.

Insisting that the two chains are a cheap source of cash, Target has resisted past calls to sell them. But some analysts say selling Mervyn's and Marshall Fields would be the best thing for the company and its shareholders.

"They become a bigger anchor around (Target's) ankles every day," said Fran Radano, a buy-side research analyst for Gartmore Global Investments, which is long Target. A sale of the two chains "would do wonders for Target's stock," he added.

Target's troubles with the two stores are nothing new, of course. Both chains have been hit by the same forces that are hitting other department stores: shoppers increasingly shunning mall-based retailers, competition from discount chains and a lack of unique products.

In fiscal 2002, Mervyn's brought in $3.82 billion in revenue. That was down 5% from the previous year and 9% from fiscal 1997. Meanwhile, pretax profits at the division fell 16.8% to $238 million in fiscal 2002 from the previous year.

Marshall Field's results tell a similar story. Although pre-tax profits rose 1.5% last fiscal year from the year before, revenue at the venerable department store chain was down 3%. Since 1997, sales are down 9% and earnings have fallen a whopping 43.8% at Field's.

While both chains have clearly struggled in recent years, things have gotten even worse in recent months. In June, for instance, sales at Mervyn's fell a staggering 12.7%, while Field's sales dropped 1.9%. Those troubles continued in July, when sales at Mervyn's and Marshall Field's declined 5.1% and 3.8%, respectively.

Mervyn's hasn't posted a single month of sales gains in the last year, and Field's has posted just one.

The poor revenue results at both companies have pulled down Target's overall performance. In July, for instance, Target reported that its overall sales increased 10.9%, while its same-store sales, which compare like results at outlets open more than one year, grew by 3.1%.

But if the company had just included the results at its eponymous discount stores and excluded those of its struggling department store chains, Target would have reported a same-store sales increase of 4.3% and an overall sales gain of 12.7%.

Chasing Wal-Mart

The drag on the company's sales growth caused by Mervyn's and Marshall Field's has also held down Target's stock price, analysts say.

Last year, revenue at Target's namesake discount stores increased by 13.3%, outpacing sales growth at rival

Wal-Mart's

(WMT) - Get Report

core discount stores. Meanwhile, overall earnings at the two companies essentially have kept pace with each over the last two years.

Target's overall sales have grown 7.8% this year, trailing Wal-Mart's pace of 10.5%. But the sales growth at Target's core discount stores has marginally outperformed that at Wal-Mart's core stores, 9.9% to 9.7%.

Despite keeping pace with the biggest company in retail -- and having essentially the same estimated long-term growth rate -- Target's share price trails far behind. Target is currently trading at about 18.8 times its projected current-year earnings, compared with 27.5 times for Wal-Mart.

The sales declines at Mervyn's and Marshall Field's "really mask the quality of (Target's) underlying assets," said a hedge fund manager, who asked not to be named. "Target stores are just terrific," added the fund manager, whose fund is long Target. "If they got rid of Mervyn's and Marshall Field's, their growth rate would seem healthier all around."

TheStreet Recommends

But while selling the two chains may make sense, such a deal may be difficult to pull off. Not only is Target resisting the notion, but it may not have any buyers out there willing to make a deal.

Part of the problem is with the chains themselves. Marshall Field's has some residual cachet and some nice stores, especially its original stores in the Chicago area, notes Craig Johnson, president of retail consulting firm Customer Growth Partners. But Target's old Dayton and Hudson stores, which were rebranded as Marshall Field's stores several years ago, have struggled, he said.

Meanwhile, Mervyn's has struggled to find its niche in the retail market. And things may get worse.

Kohl's

(KSS) - Get Report

has started to enter Mervyn's core California market. Because it has a similar business model--brand names products at discount prices--but with newer, nicer stores than Mervyn's, some analysts think Mervyn's days are numbered.

The chain may well have a negative value, says the fund analyst, meaning that a buyer would have to invest more in the stores to make them competitive than they could sell for.

"There's a concern there, that they're almost in a death spiral," said the analyst.

But even if the chains were in better shape, Target might have a difficult time finding interested buyers. The most likely candidates would be department store chains

Federated

and

May

(MAY)

. But each of those companies has had their own problems with slow sales in recent months.

May recently decided to close more than a third of its Lord and Taylor stores. And Federated has been closing and rebranding some of its regional department store chains this year.

"I don't see Federated or May making a move to consolidate or gain market share" by buying Mervyn's or Marshall Fields, said Richard Hastings, vice president and retail analyst at Bernard Sands. "They can't gain that liability."

Not everyone agrees that Target should sell off the two chains. While he wouldn't be unhappy to see Mervyn's go, Johnson believes that Marshall Field's would be worth holding onto. Target has the opportunity to market Marshall Field's to its upper income shoppers.

"There's a win in there," Johnson said.