Target Misses Again, Delays Credit Card Portfolio Sale

Target

announced today that it would delay its attempt to sell its credit card portfolio. The company had announced a year ago that it had hired an advisor to assist in the spinoff of $6.7 billion of credit card receivables. Target hoped to receive a portion of cash in the deal, as the rest would be paid to JP Morgan

which owns a 47% stake in the portfolio. As a result of the delay, Target will pay JP Morgan $2.8 billion to cover receivables financing that was provided in 2008. Target said that the payment would result in a $0.08 cut to Q4 EPS. As a result of the recession, many customers paid off their credit card balances, dramatically decreasing the revenue that Target had made off interest payments. Target still plans to sell the portfolio, but will not engage in discussions with potential partners until later in the year. As a result of the sale, Target will focus more on developing its retail and online businesses, which face weak consumer demand and increased competition from Wal-Mart

and Amazon

. Target is one of many retailers who have struggled to adapt to the online enterprise model. As customers look to cut back on expenses such as gas, they are turning to the Internet as a more convenient way to have goods delivered straight to their door. The high unemployment rate has also forced many Americans to limit their purchases to nondiscretionary goods, or items that have been heavily discounted. This conservative consumer is a new challenge to Target, which has typically relied on compulsory sales of holiday decorations, childrens' toys, and athletic equipment to fuel revenue growth. The company recently lowered its Q4 2011 EPS guidance to $1.35-1.43 from a previous range of $1.43-1.53. In an attempt to showcase some of its best product offerings, Target plans to build small specialty stores and boutiques within its retail outlets. This strategy has recently been initiated by JC Penney

, another struggling retailer which hopes to freshen the look of its retail outlets. Target has already announced a collaboration with Apple

which would introduce expanded product displays within 25 stores. "Teaming up with Apple is a smart strategy from the viewpoint of getting a new customer in the store," stated Britt Beemer, a retail analyst with America's Research Group. Target has been a tough stock for investors to gauge. Despite challenges in the retail sector, the company has made a series of positive announcements over the past few months. The company plans to buy back up to $5 billion in stock over the next 2-3 years, which is in addition to the $10 billion program that will be completed in early 2012. The company also still caters to value conscious consumers who will drive retail sales as long as unemployment remains high. That fact alone could make Target an attractive play for investors who believe the economy will continue to grow at a snail's pace.