Citing fewer defaults and a reduction in overall outstanding receivables, Target Corp.'s credit card unit more than doubled profit in its fiscal third quarter.
The Minneapolis retailer said net income from its credit card operations rose 117% for the quarter that ended Oct. 31, to $130 million from a year earlier, while average receivables declined 15.9%, to $6.9 billion. Credit card revenue declined 22.2%, to $379 million.
Fewer delinquent accounts and writeoffs during the quarter were "the biggest factor" in the credit card unit's performance, while "sequential declines" in receivables have significantly lowered Target's bad-debt reserve, further reducing risk, Doug Scovanner, Target's executive vice president and chief financial officer, told analysts during an earnings conference call Wednesday.
The annualized chargeoff rate on outstanding average gross credit card receivables declined 280 basis points, to 10.9%. Target's loan-loss reserves dropped 22.5%, to $775 million at the end of the quarter.
The proportion of debit transactions initiated with Target's loyalty card grew faster than those of credit cards during the quarter, as "the business is moving at the margin away from credit and toward debit," Scovanner said.
Target in April announced that it was no longer issuing new cobranded Target Visa cards but would continue to issue its private-label credit and debit cards.
