Like Wal-Mart (WMT), you’d think that big-box retailer Target (TGT) could thrive in this environment. But its market is a little bit more high end, so it doesn’t quite have the same cut-rate appeal. Also, it’s got much more exposure to finance through its consumer card business. Today the company gave an update on its credit card situation, reporting continued deterioration of the business.
JPM analyst Charles Grom summarizes:
The bottom line from Target’s November Credit Card Trust filing (released this AM) is continued credit deterioration with increases in both delinquencies and net charge-offs during the month. As a result, we recommend staying on the sidelines as TGT weathers both retail sales softness and disconcerting credit card exposure. On the retail front, we think Target is running materially below its “down mid single-digit to low double-digit” comp outlook so far in December.
Delinquencies and Charge-Offs Increasing: Specifically in November, Target’s delinquencies (as a % of average receivables; over 90 days) stood at 5.84%, up 28 bps sequentially and well above its 12-month avg. of 4.57%. Also, net charge-offs (as a % of average receivables; annualized) stood at 10.64%, up 69 bps sequentially and 180+ bps ahead of the company’s 8. 41% average over the past 12 months. We believe that these 2 metrics best provide a look at the credit quality of TGT’s portfolio.
Target shares are down about 4% on the news.