Target Corp.’s credit card portfolio may be gaining appeal to potential buyers the longer it remains off the auction block in one very specific respect: credit performance.
The Minneapolis-based retailer’s credit card portfolio notched dramatic improvements in losses within the past year, with the charge-off rate on its card loans plummeting 420 basis points during Target’s most recent quarter, to 5.5% from 9.7% a year earlier.
That could help spark potential buyers’ interest about a year from now, one analyst suggests. And that is also what Target execs are hoping.
Target in January announced it had taken its card portfolio off the market after struggling for years to find a buyer (see story).
During a conference with analysts Feb. 22 to discuss Target’s earnings for the fourth fiscal quarter ended Jan. 28, Target CEO Gregg Steinhafel said the company’s decision to pull its card portfolio off the block was based on the company’s desire to find “the right partner at the right time on appropriate terms,” and that is more likely to happen several months from now.
Target hopes to begin negotiating with potential buyers later this year, “with the goal of concluding an agreement with a partner by a year from now,” Steinhafel said.
And some observers expect private-label card-portfolio sales to pick up this year, putting Target in a better position to find a buyer on agreeable terms.
“The deal flow will increase this year, as will prices, so that by late 2012 the sale price Target could fetch for its portfolio would be far closer to the price desired,” Robert Hammer, CEO of credit card consultancy R.K. Hammer, tells PaymentsSource.
Target’s improving credit quality could be a plus to prospective buyers, Hammer says.
But in other respects, Target’s credit card portfolio is not ripening much on the vine.
Profit for the credit card segment fell 35.1% during the quarter, to $98 million from $151 million a year earlier. Total revenue declined 8.6%, to $351 million from $384 million.
Expenses rose 10.3%, to $236 million from $214 million, driven by a 15.1% increase in operations and marketing expenses, to $145 million from $126 million.
Average receivables for the fiscal year fell 11.3%, to $6.3 billion from $7.1 billion a year earlier.
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