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TARGET: CREDIT BUSINESS SOLID, DESPITE RECENT RISE IN CONSUMER BANKRUPTCIES.

Byline: Michael Rudnick

NEW YORK-Target's in-house credit operation continues to generate strong sales, despite the recent onslaught of personal bankruptcy filings leading up to this month's passage of new bankruptcy reform legislation.

Doug Scovanner, Target's executive vice president and chief financial officer, said during the company's Oct. 18 analyst meeting that Target's credit card operation has grown over the past five years at a faster pace than merchandise sales, and that he expects continued solid performance going forward. He said that Target saw a boost in consumer bankruptcy filings leading up to the Oct. 17 enactment of the new bankruptcy reform legislation (The Bankruptcy Abuse and Consumer Protection Act of 2005), but built this into its expectations and "reserved for it before it occurred."

Scovanner added that due to a rush in filings before Oct. 17, a number of Target accounts that would have otherwise been pushed into the category of "aged delinquencies" if consumers had not chosen to file "when the filing was good" were rather written off immediately.

Target's credit program, including Target Visa and Target Guest Cards, currently has $5.5 billion in accounts receivables, compared with $1.2 billion five years ago, Scovanner said. The Visa card on average generates a pretax yield in the 11 percent range, he added. Target's cards have recorded a net interest margin of over 700 basis points, which he said matched up with cards managed by American Express and GE Capital.

Scovanner attributed Target's credit card performance to positive macroeconomic conditions that have led to reduced delinquencies, a decline in write-offs and improved gross yields industrywide.

The credit card industry -- Target cards included -- will soon face another legislative speed bump, as the Office of Comptroller of Currency mandate to increase minimum credit card payments approaches. Minimum payments on bank-backed credit card debt could double under federal guidelines that take full effect Jan. 1, according to reports.

Scovanner expects the OCC mandate to result in a relatively small increase in reported delinquencies, but said Target has accounted for this in its future accounts receivables. He added that some accounts that will be written off in the short term will ultimately be collected in the longer term, offsetting any potential negative impact on the company's credit business.
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Title Annotation:Target Corp.
Comment:TARGET: CREDIT BUSINESS SOLID, DESPITE RECENT RISE IN CONSUMER BANKRUPTCIES.(Target Corp.)
Author:Rudnick, Michael
Publication:HFN The Weekly Newspaper for the Home Furnishing Network
Geographic Code:1USA
Date:Oct 31, 2005
Words:375
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