Target Corp., which earlier this year took its credit card portfolio off the market because of a lack of suitable offers, appears to be getting closer to securing a deal.
The company has entered into discussions with "several well-qualified partners," and the retailer remains "committed to selling these assets to the right partner on appropriate terms," John Mulligan, Target's executive vice president and chief financial officer, told analysts during a conference call Aug. 15 to discuss second-quarter earnings.
Target expects to secure the sale by late this fiscal year or early next year, he said.
The company for years has tried to sell its credit card assets.
In January, the Minneapolis-based company spent more than $2.8 billion to divorce itself from JPMorgan Chase & Co., which in 2008 paid $3.6 billion in an unusual deal to finance 47% of Target's card receivables while the retailer retained control of the overall operations.Some initially saw the deal as the prelude to Chase's eventual takeover of the entire portfolio, but industry insiders said it eventually limited Target's ability to negotiate with other potential buyers.
"Regardless of who ultimately owns the assets, we expect to maintain the deep integration that our teams have achieved in our retail and credit card strategies over time," Mulligan said during yesterday's call.
During the quarter ended July 28, average receivables in the U.S. Credit Card segment decreased 5%, to $5.9 billion from $6.2 billion a year earlier, reflecting the slow runoff of higher-balance Visa accounts, partially offset by new proprietary card accounts with lower balances and higher payment rates, Mulligan said.
"We expect the receivables portfolio will end the third quarter about $300 million below last year, or about $100 million below where we are today," Mulligan said. "We expect risk levels will begin to stabilize at historically low levels, meaning the reserve as a percent of receivables should begin to stabilize as well."
Penetration of sales from Target-branded credit and debit cards was 12.8% in the quarter, up more than 4 percentage points from a year earlier, he said.
Mulligan also cited the positive performance of the retailer's REDcard 5%-back loyalty program.
"Before the launch of this loyalty program, penetration was around 5%, and headed lower. In less than two years, we've not only reversed this trend, but today our penetration is higher than it's ever been in our history," he said. "Importantly, trends at the household level have not changed. Regardless of whether guests choose a credit or debit card, we see average incremental spending of more than 50%."
The card unit generated total revenue of $328 million, down 4.9% $345 million. Expenses were up 18.6%, to $185 million from $156 million.