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Target Corp. reported its credit card business swung to a $135 million pretax loss in its fourth quarter, which ended Jan. 31, from a $189 million profit a year earlier.
The Minneapolis retailer, which released the results this week, attributed the card business loss to its need to add $245 million to loan-loss reserves as the economic downturn caused chargeoffs to soar during the quarter. Target added $440 million to its loan-loss reserves during all of fiscal 2008.
Profit from Target's credit card segment for the full fiscal year fell 80.6%, to $155 million.
Douglas Scovanner, an executive vice president and Target's chief financial officer, told analysts during a conference call that, despite the sharp quarterly loss, the company expects credit card writeoffs to stabilize during the next two quarters.
"Overall, this means that we're highly likely to return to moderate rates of profitability in [the credit card] segment in the next two quarters but not likely as strong as the profits we generated during the first two quarters of 2008," he said.
Though Target's customers "don't live on Wall Street," the company attributes its sharp uptick in credit card writeoffs to the banking meltdown last fall, Mr. Scovanner said. "You can almost trace it to the weekend that Lehman failed and the Merrill Lynch-Bank of America transaction was announced," he said.
Target sold 47% of its credit card receivables to JPMorgan Chase & Co. in May.
