More Target customers are staying current on credit cards

Article by: JACKIE CROSBY , Star Tribune
Updated: March 22, 2010 - 8:32 PM

The retailer's credit card arm showed some signs of improvement.

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Target Corp. reported Monday that trends in its $7.6 billion credit-card portfolio improved in February, as fewer of its credit-card holders are falling behind on their payments.

Accounts that are 30 or more days late made up 8.57 percent of the company's receivables in February, compared with 8.9 percent the previous month.

It's too soon to know whether Target's credit-card holders overextended themselves during the holiday shopping season. That will become apparent in the next few months.

Retail analysts have said that fewer consumers bought gifts with credit cards this year, both because of their own tighter rein on household budgets and also because companies, including Target, made it harder for them to get credit.

Still, in a sign of how hard its customers have been hit, its annualized net charge-off rate of 15.09 percent is more than double what it was before the recession.

The Minneapolis-based retailer wrote off $97 million in bad credit for the month, in line with what executives projected. Target wrote off about $293 million that quarter, and expected write-offs to continue on that pace in the first quarter.

Target's tighter credit-card standards, along with fewer consumers using their cards, has resulted in a 13 percent decline in its receivables portfolio. In February, the retailer saw a nearly 11 percent drop in the amount it collected in finance fees, compared with last year.

The retailer's credit-card operations contributed about 5 percent of pretax profit in 2009.

Analyst Mark Miller of William Blair & Co. said Target's drop in early delinquencies, which signal the potential write-off pool of the future, is outperforming other credit-card issuers he tracks.

Jackie Crosby • 612-673-7335