Interest in Target Corp.’s credit card receivables has “met or exceeded” expectations, and a sale could occur by early next year, Doug Scovanner, Target chief financial officer, said during an Aug. 17 conference call with analysts to discuss fiscal second-quarter earnings.
The retailer’s card portfolio has been on the block since January (
Citing the interest from potential buyers, Scovanner said he believes a deal may close later this year or early next year. “At the moment, the recent turmoil in global capital markets does not appear to have changed this view,” he said.
The company’s credit card unit results for the quarter exceeded expectations, Scovanner said. The 5% Red Card loyalty program Target launched in October 2010 is proving to be successful, driving incrementally higher store sales, he noted.
Benefiting from sharply lower card-account defaults in the wake of the recession, Target’s credit card unit generated a profit of $171 million for the fiscal second quarter ended July 30, up 14.8% from $149 million a year earlier, the company announced Aug. 17.
Credit card revenue during the quarter fell 15%, to $345 million from $406 million, and overall card receivables decreased 12.7%, to $6.2 billion from $7.1 billion. Average receivables funded directly by Target decreased 20%, to $2.4 billion from $3 billion.
Losses from bad card loans declined 89.1%, to $15 million during the quarter from $138 million a year earlier. The charge-off rate fell 570 basis points, to 6.5% from 12.2%. Because of the improved performance, Target reduced its loan-loss reserve by 39.2%, to $565 million from $930 million.
Target-branded card use accounted for 8.7% of total store sales during the quarter, up 350 basis points from 5.2% a year earlier.
Target’s private-label credit and Visa cobranded credit cards together drove 6.6% of store sales, up 190 basis points from 4.7%, while the company’s private-label debit card drove 2.1% of purchases, up 160 basis points from 0.5%.
Overall, Target credit cardholders’ purchase volume through Target’s stores and website rose 43.8%, to $1.1 billion from $765 million, while its cobranded credit cardholders’ spending at other merchants declined 6.7%, to $1.4 billion from $1.5 billion.
Credit card operating and marketing expenses during the quarter rose 47.3%, to $137 million from $93 million.
As a company, Target reported net earnings for the quarter of $704 million, up 3.7% from $679 million.
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