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Profits soar at credit card unit.

MINNEAPOLIS -- Steadily improving risk trends resulted in third quarter profit more than doubling in Target Corp.'s credit card business.

Even though total credit card revenues plummeted 22.1% to $379 million during the three months ended October 30, the bad debt provision contracted 63.5% from prior-year levels to $110 million, helping total expenses decrease 43.3% to $229 million. As a result, segment earnings before interest expense and income taxes soared 80.7% to $150 million and segment profit skyrocketed 116.7% to $130 million.

Gross receivables serviced at the end of the quarter fell 16.4% to $6.73 billion, while net write-offs contracted 33.7% to $186 million. Write-offs as a percentage of average annualized credit card receivables declined to 10.9% from 13.7% a year ago.

"Strong credit card segment performance continued in the quarter due to sequential improvement in many measures of risk, including delinquencies and write-offs," said chief financial officer Douglas Scovanner during a conference call. "These favorable trends led to a sharp reduction in the bad debt expense recorded in the quarter, which was the biggest factor driving our increase in segment profit."

Looking ahead, Scovanner said the company expects the favorable trends to continue in the fourth quarter, although at more moderate rates of improvement. "We expect year-over-year receivables declines in the fourth quarter to be in line with our experience so far this year," he said. "The dollar value of expected write-offs should be consistent with our third quarter experience and, again, we'd expect our bad debt expense to be lower than write-offs."

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Title Annotation:MONEY
Article Type:Financial report
Date:Dec 13, 2010
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