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MINNEAPOLIS - Target Corp. on Thursday posted a 4.5 percent increase in quarterly profit as strength in its credit card business compensated for disappointing holiday sales, Reuters reports.
The No. 2 U.S. discount chain behind Wal-Mart Stores Inc. said it earned $688 million, or 75 cents per share, in the fourth quarter, ended Feb. 1, compared with $658 million, or 72 cents per share, a year earlier.
Fourth-quarter revenue rose 6.4 percent to $14.1 billion, but sales at stores open at least a year fell 2.2 percent.
Excluding revenue from credit cards, sales rose 5.6 percent to $13.7 billion.
Target's December sales -- a critical month for retailers because it includes the bulk of the holiday shopping season -- fell short of the company's expectations, but it managed to keep costs down and protect its profits.
The retailer's credit card operations provided a major boost in the fourth quarter, with pretax segment profit up a whopping 41.5 percent to $150 million.
Credit cards have become increasingly important for Target and other retailers as sales have slowed. Target ranks behind only Sears, Roebuck and Co. in retailer credit card issuance, according to Reuters.
Target began offering more information on its credit card operations this quarter. The retailer, which offers both a Target Visa credit card that can be used anywhere and a proprietary card good only at its stores, said Visa revenue reached $212 million in the quarter, while revenue for its store cards was $171 million.
Retailers have been encouraging customers to switch to Visa cards from store cards because the companies can get revenue from purchases made elsewhere.
However, write-offs of bad credit card accounts have been on the rise as more people have trouble paying their bills in a sluggish economy. Target said net write-offs reached $65 million in the fourth quarter on its Visa card, up from $49 million in the third quarter. On its store card, it wrote off $46 million, versus $41 million in the third quarter.
Target said 3.1 percent of the balances on its Visa card were past due, compared with 3 percent in the third quarter. On the store card, 5.1 percent of balances were past due, compared with 5.6 percent in the third quarter.