Target Corp. is temporarily suspending its efforts to sell its credit card receivables portfolio but plans to pickup talks later this year.
The move comes after news last January that it was “actively” pursuing the sale of its credit card receivables. On its third-quarter earnings call in November, the Minneapolis-based retailer said it anticipated a deal closing before chief financial officer Doug Scovanner retires at the end of March.
Today, Target indicated it would pay roughly $2.8 billion to Chase Card Services to retire receivables financing from 2008. The payment, along with a premium, is expected to shrink Target’s fourth-quarter earnings by about 8 cents a share.
Earlier this month, Target lowered its fourth-quarter guidance to between $1.35 and $1.43 a share, from $1.43 to $1.53 a share.
“Our desire to sell the portfolio on appropriate terms remains the same today as it was when discussions began, but we believe that now is not the time to finalize a transaction,” said Scovanner, executive vice president and cfo. “We believe a pause in discussions until later in 2012, combined with repayment of the Chase Card Services financing, will enable Target to reach an agreement with a high-quality financial partner on acceptable terms.”
Target now believes it will be able to get a deal and sell the portfolio in late 2012 or early 2013.
According to Deutsche Bank analyst Charles Grom, today’s news is “negative” because it will “reduce the amount of capital that management can free up to repurchase stock and invest in its business.”
Target’s “inability” to secure a buyer suggests that management is “overvaluing” the business, he said, adding that if the economy continues to erode, holding the credit business could “expose total company EPS” to further augmentation as the year progresses.
“Given the upcoming retirement of long-standing cfo Doug Scovanner, that the sale of the credit unit will not transpire on his watch is discouraging to us given his knowledge of the segment and the high degree of complexity such a transaction will entail,” Grom concluded.
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