Citing lower overall expenses, Target Corp. on Tuesday announced improved results for its credit card operations during its fiscal fourth quarter.
Target’s credit card segment, consisting of its private-label credit card and its co-branded Visa card, generated a profit of $39 million for the quarter ended Jan. 30; it reported a $135 million loss for the same period a year ago. Total revenues were $462 million, down 14% from $537 million.
Finance-charge revenue totaled $353 million, down 9.7% from $391 million, while late-fee and other revenue fell 28.2%, to $79 million from $110 million. Third-party merchant fees fell 16.7%, to $30 million from $36 million.
Target wrote off $293 million in loan losses during the quarter, up 14.9% compared with $255 million a year earlier. The charge-off rate on Target’s credit cards was 14.4%, up 320 basis points from 11.2%. Target’s “bad-debt expense” for credit cards fell 43.2%, to $284 million from $500 million, helping to drive down total expenses for the credit card unit by 36.6%, to $400 million from $631 million.
For the full year, Target’s credit card operation generated a profit of $201 million, up 29.7% from $155 million during the previous fiscal year. Total revenues for the year were $1.92 billion, down 8.6% from $2.1 billion.
During a conference call today with analysts, Gregg W. Steinhafel, Target chairman, president and CEO, said Target’s credit card-unit profits were “a notable achievement in light of the challenges faced by many other credit card issuers in 2009.”
Douglas A. Scovanner, Target executive vice president and chief financial officer, told analysts Target is conducting two credit card tests that could result in rollouts nationally, depending on results. In one test in San Antonio, Target is accepting only its private-label cards. In another test, in Kansas City, Mo., Target is giving customers a 5% rebate on all purchases made with either its private-label or co-branded Visa cards.
The company is seeing “sharply higher penetration” of credit card accounts and card use in Kansas City, Scovanner said. He did not discuss results of the San Antonio test but said the company is analyzing the profitability of rolling out the 5% rebate program “on a much larger scale.”
