Nomura Securities on Retail: Estimating The Benefit From The Credit Card
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Today's Overall Ratings:
Up: 17 | Down: 14 | New: 17
Rating Summary:
4 Buy, 15 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 17 | Down: 14 | New: 17
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Nomura Securities on Retail: Estimating The Benefit From The Credit Card
Analyst, Paul Lejuez, said, "We call credit income the “stealth” expense tool, because most retailers that do not own their receivables do not provide quantification of the income they receive from the business. For this reason, the benefit may often be overlooked by investors. In our coverage group, Ann (NYSE: ANN), JCPenney (NYSE: JCP), Kohl's (NYSE: KSS), Limited (NYSE: LTD), Macy's (NYSE: M) and TJX Cos (NYSE: TJX) all offer credit cards to consumers, but do not own the receivables. And only ANN, KSS, and M quantify the P&L benefit (it’s an offset to SG&A). Outside of the three companies that have transparent disclosure on credit, it is a challenge to figure out how much the others have been helped on the SG&A line. Of these companies, we’re going to pick on GPS, because we believe credit income was likely most significant for the company. If we assume that GPS credit income represented 1.3% of sales in 2010 (similar to M), and also assume that it grew at 60% in F11 (similar to M, excluding M’s 3Q catch-up), we can estimate 2011 credit income dollars. If we then exclude credit income from SG&A, we can see that GPS’s underlying SG&A would have delevered by 50 bps, and would have been up 1% YoY in dollars. As we look to F12, we do not anticipate credit becoming a headwind, but it is unlikely to be as useful an expense tool as it was in 2011.
Analyst, Paul Lejuez, said, "We call credit income the “stealth” expense tool, because most retailers that do not own their receivables do not provide quantification of the income they receive from the business. For this reason, the benefit may often be overlooked by investors. In our coverage group, Ann (NYSE: ANN), JCPenney (NYSE: JCP), Kohl's (NYSE: KSS), Limited (NYSE: LTD), Macy's (NYSE: M) and TJX Cos (NYSE: TJX) all offer credit cards to consumers, but do not own the receivables. And only ANN, KSS, and M quantify the P&L benefit (it’s an offset to SG&A). Outside of the three companies that have transparent disclosure on credit, it is a challenge to figure out how much the others have been helped on the SG&A line. Of these companies, we’re going to pick on GPS, because we believe credit income was likely most significant for the company. If we assume that GPS credit income represented 1.3% of sales in 2010 (similar to M), and also assume that it grew at 60% in F11 (similar to M, excluding M’s 3Q catch-up), we can estimate 2011 credit income dollars. If we then exclude credit income from SG&A, we can see that GPS’s underlying SG&A would have delevered by 50 bps, and would have been up 1% YoY in dollars. As we look to F12, we do not anticipate credit becoming a headwind, but it is unlikely to be as useful an expense tool as it was in 2011.
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