Rob Black's Retail Stock Report

 |  Includes: M, TGT
by: Rob Black
Federated (FD) recently announced an agreement to sell its Bridal Group Division in two separate transactions for a total of $750 million after tax ($850 million in pre-tax cash proceeds), in line with previous estimate of $730 million after tax.

Expect FD will use the proceeds to repurchase shares, as short-term acquisition related debt has been repaid. The company resumed its share repurchase program in June, and subsequently repurchased 8.1 million shares for about $287 million (average price of $35.43 per share) during 2nd quarter 2006, and 19.8 million shares for about $830 million (average purchase price of $41.92) during 3rd quarter 2006.

Target (NYSE:TGT) remains committed to credit and provided more details about its credit card operations at a meeting last Friday. Credit generated about 24% of total EBIT in 3rd quarter 2006 compared to 17% in 3rd quarter 2005. Credit should generate 11% in annual pretax yields, high compared to pretax yields generated by other credit card companies (about 5%).

Portfolio and reporting differences, along with cost efficiencies, account for the difference in the yields. TGT’s credit customers drive ticket and traffic at the retailer; loyalty rewards help add incremental sales. The average value of the rewards earned by customers represents about 1% of their spending - in line with offers from other credit card companies.