IMGCAP(1)]
Stress in Target Corp.'s credit card portfolio represents the second-largest challenge affecting the company's earnings in the near-term, officials told analysts during a second-quarter earnings conference call Tuesday. "Here we continue to be adversely affected by the macro environment in which we and all other owners of similar credit-quality portfolios operate," said Douglas A. Scovanner, Target executive vice president and chief financial officer. While Target's profit-and-return profiles continue to outperform those of most others in the card business, the company's write-off trends are modestly weaker than what was expected earlier in the year, he said. Specifically, Target's annualized net write-off rate was 8.7% for the quarter, higher than the 7% to 8% projected for the year, Scovanner says. Target is handling the hardship through "terms changes to existing cardholders combined with aggressive reduction of credit lines and significant tightening of all aspects of our underwriting," he says. The average receivables Target directly funded during the quarter declined 20%, to $3.6 billion from $4.5 billion a year ago, reflecting the impact of JPMorgan Chase & Co.'s investment in the receivables portfolio and partially offset by a $1.8 billion increase in average receivables, the company stated. Segment profitability during the quarter declined 65%, to $74 million from $213 million for the same period last year.
