Target Sees Challenges in Selling Credit-Card Unit
Target Corporation on Thursday identified some challenges that could hinder or delay the sale of its credit-card portfolio-but it's moving forward with its planned expansion to Canada.
The Minneapolis-based retailer in January announced that it intended to sell the portfolio. But in a Thursday filing with the U.S. Securities and Exchange Commission, the company outlined some difficulties in doing so.
“We intend to execute a transaction only if appropriate strategic and financial conditions are met,” Target said in the filing. “Our ability to sell the portfolio is affected by the limited number of potential buyers, an inactive market, the complexity of the contemplated transaction, and the portfolio size.”
Target offers two credit cards to its guests-one that can only be used at Target stores and Target.com, and a Target Visa that can be used anywhere that credit cards are accepted.
For the first quarter that ended April 30, Target's credit-card unit posted sales of $355 million, or 2.2 percent of the company's total revenue during that period. The unit's profit was $194 million, representing about 28 percent of the retailer's total first-quarter earnings.
Target said in the regulatory filing that credit-card revenues consist mostly of finance charges, late fees, and third-party merchant fees-money received by merchants that accept payments via Target's Visa credit card.
In the second quarter of 2008, Target sold 47 percent of its credit card receivables to JPMorgan Chase for $3.6 billion.
In addition to filing information about its credit-card unit, Target separately on Thursday announced that it has chosen 105 sites-located across all 10 Canadian provinces-at which it plans to construct Target stores. The sites are currently operated by Canadian retailer Zellers, Inc.
In October 2010, following much media speculation about an expansion in Canada, Target confirmed its plans to open stores north of U.S. borders. Then in January, Target announced that it would pay $1.825 billion in Canadian currency (translating to about $1.846 billion in U.S. currency) to take over the leases of up to 220 Zellers sites. At the time, Target said that it expected to open between 100 and 150 stores throughout Canada in 2013 and 2014.
Under the terms of its agreement with Zellers, Target was permitted to select up to 110 sites in conjunction with a payment amounting to half of the approximately $1.8 billion that it agreed to pay; Target expects to make that payment “in the coming days” and finalize the acquisition of the sites. The company can select additional sites in conjunction with its second payment, which is scheduled for this fall. Target plans to remodel all sites at an average cost of about $10 million for each.
Target said that in addition to selecting sites for its stores, it also selected a location for its Canadian headquarters-a 180,000-square-foot, LEED Gold-certified space in Ontario. The employees who will work in the space will begin occupancy in early 2012, Target said.
Target will begin opening its Canadian stores in 2013. Each one will employ between 150 and 200 people.
Target is Minnesota's second-largest public company based on revenue, which totaled $67.4 billion in the fiscal year that ended in January. The company's stock price closed up 0.1 percent at $49.41 on Thursday. Mid-day Friday, it was trading down 0.24 percent at $49.29.