Higher costs drove down profits from Target Corp.'s credit card business in its fiscal second quarter.
The retailer reported Tuesday that the card unit's profits for the quarter, which ended Aug. 1, fell 14.9% from the year-earlier period, to $63 million. The unit's revenue was $500 million, versus $501 million a year earlier.
Average gross credit card receivables funded by Target fell 21.2%, to $2.86 billion.
Target's chargeoff rate on outstanding receivables was 12.1%, up 450 basis points from 7.6%. The Minneapolis company's loan-loss provision rose 69%, to $1 billion.
Finance-charge revenue for the credit card unit rose 10.9%, to $377 million, while revenue from late fees and related charges fell 24.8%, to $91 million. Third-party merchant fees fell 20%, to $32 million. Expenses rose 9%, to $413 million.
During a conference call with analysts Tuesday, Douglas A. Scovanner, a Target executive vice president and its chief financial officer, said the retailer's credit card portfolio "continues to exhibit stability" and improving yields, even as the overall portfolio is shrinking.
Credit card issuers' tightening of credit policies is having an incremental effect on same-store sales, Scovanner said, noting that credit cards account for about a third of Target's sales.
About 6% of those sales are on Target's private-label credit card or its cobranded Visa Inc. credit card.
However, he also said the Credit Card Accountability, Responsibility and Disclosure Act will be "a major league headwind" for Target's credit card business this year, and will "adversely impact the profitability of all card portfolios, like this one."
