NEW YORK — Kohl's Corp. has sold its private label credit card business to J.P. Morgan Chase for $1.5 billion.
As part of the transaction, Kohl's and J.P. Morgan Chase entered into a five-year agreement under which Kohl's will handle the customer-service functions of the accounts, but will receive payments in connection with the profitability of the credit card program. All current Kohl's credit organization associates will remain employees of the retailer.
Arlene Meier, Kohl's chief operating officer and treasurer, said in a conference call to Wall Street that the deal is expected to close within 90 days. She added that the pact can be extended on mutual agreement, and noted that there is a provision enabling Kohl's to buy back the credit card accounts under certain circumstances at the end of the initial five-year term.
"This transaction strengthens our balance sheet and improves our return on assets," Larry Montgomery, Kohl's chairman and chief executive officer, said in a statement. "It converts our receivables to cash while allowing us to continue to service our customers and participate in the ongoing growth and profitability of our credit business. The transaction is expected to generate savings in interest expense in fiscal 2006, therefore increasing both net income and earnings per share."
The retailer said it will use the initial proceeds from the transaction in part to repurchase $2 billion of Kohl's stock over a two- to three-year period, fund its store expansion and for general corporate purposes.
"We are pleased to be partnering with Kohl's, one of the nation's best retail brands and a great growth company," Rich Srednicki, chief executive officer, Chase Card Services, said in a statement. "We are eager to work with Kohl's to expand their private label business and to continue working closely with Kohl's to offer great service and value-added products to consumers."
Kohl's plans to open 500 stores over the next five years, 80 to 85 of them in 2006. The company increased it fiscal 2006 earnings guidance to $2.74 to $2.87 a diluted share from $2.72 to $2.85.
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