Target Card Business In Play

Target (TGT) may be working out ways to monetize its credit card business, according to sources following the retailer.

Last week, finance chief Doug Scovanner told investors at a Goldman Sachs retail conference that Target would consider exploring strategic alternatives for its real estate and credit portfolio, as long as any possible deals don't disrupt its relationship with customers.

Target's shift comes less than two months after William Ackman's Pershing Square Capital revealed a 9.6% stake in the nation's second-largest discount retailer. Pershing's nearly $2 billion stock purchase kindled speculation that the firm would look to pressure Minneapolis-based Target to shed its credit card operations and real estate portfolio to focus on retailing.

Now observers speculate that a sale of Target's credit business may be announced by the end of the month.

The events seem to signal a change of heart for a company that has kept its credit operation in house, even as retail peers such as Sears (SHLD) and Kohl's (KSS) have fled the card business.

"They have been challenged for five years, and for five years they have said that a sale would absolutely not be advantageous to monetize the portfolio," says Howard Davidowitz, chairman of retailer consulting firm Davidowitz & Associates in New York.

Indeed, last year, Target told The Wall Street Journal that it was not willing to shed its credit card business. During its most recent earnings report, the retailer reiterated the importance of its credit cards, whose pretax earnings rose 34% from a year ago in the second quarter.

But the company certainly appears willing to consider a deal now.

"We're always open for an economic transaction that will add value for our shareholders -- regardless of who our shareholders are," said a Target spokesman. He declined to comment on specifics about the retailer's strategic plans.

Officials at Pershing Square in New York didn't return calls.

If Target has changed its tune, it's possible that more is behind the shift than interest from hard-charging activist Ackman. Observers note the deteriorating credit environment.