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AmEx’s Prepaid Card for Target Could Hit the Bull’s-Eye

AXP, TGT are taking a joint shot at their bigger industry rivals

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Meanwhile, Target’s long-running war with discount retail titan Wal-Mart has brought the company back into the card business — indirectly, at least.

In 2001, Target began offering a store-branded Visa credit card that eventually yielded a significant payout — pulling in $797 million in 2007. However, Target was far from immune from the 2008-09 financial crisis, and as customers began ignoring the bills, the company was forced to write off considerable amounts of debt, including more than $1 billion in 2009. The fiasco helped drag TGT shares through the mud, hitting an all-time low around $26 in March 2009. By April 2010, Target ended the relationship, choosing instead to continue offering only its traditional store card.

Target has since recovered, its stock more than doubling since then. In Target’s latest quarterly report, the company announced earnings of $555 million, or 82 cents per share, beating FactSet analysts’ expectations of 74 cents per share. Revenue rose to $16.4 billion — the fourth-straight quarterly increase for the company.

Still, TGT shares are down 12% year-to-date while Wal-Mart keeps plodding ahead (up 6.5% YTD). In its latest quarter, WMT finally broke a nine-quarter streak of declining revenues in U.S. same-store sales.

To stem the tide, Target now is revisiting cards — in a much less risky way — to pull more customers into its stores. Through such AmEx benefits such as roadside assistance, cardmember discounts and purchase protection, the retailer hopes its branded prepaid card will prove more attractive than the Wal-Mart equivalent.

The timing couldn’t be better for both Target and American Express — the official release came in with well more than a month to go in what’s expected to be a fruitful holiday shopping season. November and December should provide a telling picture as to how lucrative the pairing of an “upper-crust” prepaid card and discount retail’s trendy No. 2 player might be.

As of this writing, Kyle Woodley did not own any a position in any of the aforementioned stocks.

Article printed from InvestorPlace Media,

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