Deterioration In Credit Card Portfolio Hits Target’s Bottom Line

Macro Economics | Stocks

Target (TGT) reported 2nd quarter earnings before the open this morning and what really caught my attention was the detioration in their credit card portfolio (TGT Earnings Release). 

Target, a $40 billion market cap company, has its own credit card on which it has $8 billion in receivables.  The quality of that portfolio has been deteriorating the last few quarters, resulting in a $139 million decrease in earnings in the segment in the current quarter compared to a year ago.

60+ day and 90+ day delinquent accounts increased to 4.5% and 3.1% compared to 4.2% and 2.9% a quarter ago and 3.5% and 2.3% a year ago.  Annualized net write offs, receivables they give up on collecting and remove from their balance sheet as assets, increased to 8.7% compared to 7.6% a quarter ago and 5.4% a year ago.

If net write offs increase to 12% over the next year, that could mean an additional $300 million hit to net income, which represents about 10% of their net income over the last 4 quarters.

More broadly, this is just another indication of the distress consumers are experiencing.

Disclosure: Top Gun has no position in Target (TGT) shares.

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