Target Corp. said it will again suspend its efforts to sell its credit-card receivables portfolio until later this year and outlined plans to pay JPMorgan Chase & Co. about $2.8 billion, along with a make-whole premium, to retire financing it received in 2008.
"We believe a pause in discussions until later in 2012, combined with repayment of the Chase Card Services financing, will enable Target to reach an agreement with a high-quality financial partner on acceptable terms," Chief Financial Officer Doug Scovanner said.
The company had unveiled plans to pursue a sale of the credit-card receivables last January, and had expected a sale last year or early this year. The company now see the sale coming late this year or early next year.
The retailer's credit card program had come under fire in recent years. It had announced a review and potential sale of the business in fall of 2007, but the looming credit crunch made the move undesirable. In 2008 it agreed to sell a stake in its credit card receivables to JPMorgan following the urging of such a deal by activist investor Bill Ackman.
Target, the nation's second-biggest retailer by sales behind Wal-Mart Stores Inc., said it expects fourth-quarter earnings will be reduced by about 8 cents a share due to financing retirement. The company expects to recoup some or all of the cost of the premium through lower expected interest expense in this year and next year.
Target said Chase provided last year an option to retire the financing, which expires at the end of the month. The move will allow Target to market the portfolio when it resumes partner discussion later this year.
Target had previously indicated it liked the idea of freeing up the receivables, which are listed as assets on its balance sheet. The accounting ties up capital that Target could use for other investments, such as reducing debt or buying back shares.
Target's desire to rid itself of card receivables is similar to the step Kohl's Corp. took, when it sold its receivables to HSBC at a price that didn't hurt earnings. Investors are generally not fond of retailers owning card operations because it is not a core competency for them and in bad times can be a big money drag.
Target reported in November its fiscal third-quarter earnings rose 3.7% as same-store sales grew and the retail giant's bad-debt expenses declined. The company's performance has been aided by giving shoppers 5% off when they use Target's credit, debit or Visa cards.