Deterioration In Credit Card Portfolio Hits Target’s Bottom Line


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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