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Credit card unit shows strength.

MINNEAPOLIS -- Target Corp.'s credit card business performed far beyond management's goals in both the fourth quarter and the full fiscal year. Although revenues declined by double digits in both periods, expenses fell even more dramatically, causing segment profit to skyrocket.

Full-year credit card revenues fell 16.5% to $1.6 billion, but bad debt expense plummeted 55.4% to $528 million, helping total segment expenses to tumble 39.7% to $980 million. Consequently, segment earnings before interest and taxes (EBIT) for fiscal 2010 soared 109.4% to $624 million, while segment profit vaulted 169.2% to $541 million.

Credit card revenues for the fourth quarter fell 17% to $384 million, but total expenses decreased 46.5% to $214 million, as bad debt expense plunged 70.8% to $83 million. As a result, EBIT shot up 174.2% to $170 million while segment profitability grew nearly fourfold to $151 million from $39 million in the prior-year quarter.

Gross receivables serviced at the end of the year declined 14.3% to $6.84 billion, and net write-offs fell 23.8% to $1.25 billion--still exceeding the bad debt allowance of $1.02 billion. Write-offs as a percentage of year-end receivables, contracted to 10.1% from 12.7% a year ago.

"Our Credit Card Segment continues to deliver superior results, far exceeding our expectations for the quarter and for the year," said chief financial officer Douglas Scovanner during a conference call with analysts. He went on to note that the 169% jump in segment profit for the year "drove the pretax return on the $2.8 billion of capital Target has invested in these assets to a record 19.5% for the year. Key measures of risks, including trends and delinquencies and trends in dollar-weighted portfolio FICO scores, continue to migrate swiftly in the right direction."

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Title Annotation:MONEY
Date:Mar 21, 2011
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