January 18, 2012 / 5:43 PM / in 6 years

UPDATE 3-Target card sale on hold, earnings will take hit

* Will restart talks later in 2012, likely after CFO leaves

* To pay Chase $2.8 bln to retire 2008 receivables

* Will lower Q4 EPS by 8 cents

* Shares down 1.1 pct after dropping as much as 2.4 pct (Adds analysts’ comments, updates stock price)

By Jessica Wohl

Jan 18 (Reuters) - Target Corp put plans to sell its portfolio of credit card receivables on hold for now and will restart talks with several potential buyers later this year after paying off financing it has with Chase.

Target said last January that it was actively pursuing a sale of the portfolio. As recently as late November, the company said it was in talks and a deal could be reached as early as its fourth quarter, which ends this month.

However, on Wednesday, Target signaled a change in course, saying that talks with a limited number of potential partners helped it determine that a pause in those talks and paying off financing it has with Chase would help it reach an agreement on acceptable terms later in 2012 or early in 2013. It gave no other details for the delay.

The announcement pushed Target’s shares down as much as 2.4 percent. The shares were off 1.1 percent at $49.38 in early afternoon on the New York Stock Exchange.

“It’s another negative for the stock,” said Deutsche Bank analyst Charles Grom.

Target has had issues lately, including weak traffic in stores for more than a year, struggles with its Internet business including crashing and delayed orders, turnover in management and a second somewhat weak holiday season in a row.

The company appeared ready to repurchase more shares with the cash that would come from the sale, thereby driving down its number of shares outstanding and increasing earnings per share growth, a move many on Wall Street were hoping to see.

Putting the credit card plan on hold also comes just two months before the planned March 31 retirement of Chief Financial Officer Doug Scovanner, who was a public supporter of the sale. His successor has not been named yet.

With Scovanner as CFO, Target set a goal of earning at least $8 per share by 2017, once initiatives such as opening Canadian stores in 2013 and selling fresh food at additional U.S. stores take hold. Last year, it earned $4 per share.

Target said it would retire financing it obtained from Chase Card Services, a unit of JPMorgan Chase & Co, for 2008 receivables, and that step would allow it to shop the portfolio around once talks with potential buyers resume. A payment related to that move will cut into the company’s fourth-quarter earnings.

Target is looking to sell only the debt it is owed by cardholders. It would retain control of its credit card operations, which are part of a key marketing strategy.

Since 2010, Target has offered 5 percent discounts to shoppers who use its branded credit card. Last year, in another push to generate more sales, it added the incentive of free shipping for online orders placed with the so-called REDcard.

The discount retailer now expects a sale of the receivables to happen late this year or early in 2013 -- about a year later than originally planned.

Morningstar analyst Michael Keara thinks that Target should actually hold on to the business, as it has contributed to EBIT margins every quarter except the fourth quarter of 2008, during the height of the credit crisis.

“I’ve always liked the business,” said Keara.

Target’s credit card delinquency rates have improved in the past year. In December, only 3.1 percent of accounts had three or more payments past due, down from 4.2 percent a year earlier. Just 2.2 percent of accounts had four or more payments past due, down from 3.1 percent a year earlier.

However, if Target keeps the business and the economic climate deteriorates, “they’re going to be holding a business that they’re going to need to reserve more for,” and the need to increase bad debt reserves could then pressure earnings per share, Deustche Bank’s Grom said.

Target said it will pay Chase about $2.8 billion to retire its financing now, before the expected payoff in late 2013. The payment and a make-whole premium will cut its fourth-quarter earnings by 8 cents per share. Earlier this month, Target forecast earnings of $1.35 to $1.43 per share for the holiday quarter.

Target expects to recoup some or all of the cost of the premium through lower expected interest expense in 2012 and 2013. (Reporting by Jessica Wohl in Chicago and Phil Wahba in New York; Editing by Gerald E. McCormick, Maureen Bavdek and Matthew Lewis)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below