One thing merchants know about markdowns is they are best taken early and at a modest level to stimulate sales as opposed clinging too long to the belief goods will sell at full price only to realize steeper cuts are needed. Apparently this philosophy doesn’t apply in the financial services world where Target has temporarily suspended the sale of its credit card receivables portfolio on better terms.
The company said it remains committed to selling the portfolio on appropriate terms, but based on discussions with potential partners, the company has determined that it is not in its best interests to finalize a transaction at this time. Later in 2012, the company expects to re-engage in discussions with a limited number of potential partners, and expects to be well-positioned to streamline those conversations based on the groundwork established in its 2011 efforts.
Target had been working on the transaction since January 2011 and had previously indicated a deal would be likely in late 2011 or early 2012, but now the timetable has been moved back a year. Not sure what went wrong or why potential acquirers and Target couldn’t come to terms, but CFO Doug Scovanner said, “Our desire to sell the portfolio on appropriate terms remains the same today as it was when discussions began, but we believe that now is not the time to finalize a transaction.”
He added: “A pause in discussions until later in 2012, combined with repayment of the Chase Card Services financing, will enable Target to reach an agreement with a high-quality financial partner on acceptable terms.”
Target also announced today that it intends to retire the 2008 receivables financing provided by Chase Card Services, a subsidiary of JPMorgan Chase. In 2011, Chase provided Target an option to retire this financing, and this option expires at the end of January, 2012. Retiring this financing, prior to its expected payoff in late 2013, will allow Target to market the portfolio when the company resumes partner discussions later in 2012. Target will pay Chase approximately $2.8 billion to retire this financing, along with a make-whole premium, the combination of which will reduce fourth quarter 2011 earnings per share by approximately eight cents. Target anticipates it will recoup some or all of the cost of this premium through lower expected interest expense in 2012 and 2013.