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.