JPMorgan to buy Kohl's credit unit

Discounter to get $1.5 billion for card business

March 07, 2006|By BLOOMBERG NEWS

NEW YORK -- Kohl's Corp. agreed yesterday to sell its credit-card business to JPMorgan Chase & Co. for $1.5 billion and will use the proceeds for its first ever repurchase of shares and to open stores.

The discount department-store chain increased its profit forecast for the current fiscal year to as much as $2.87 a share because of the transaction. The share repurchase will for up to $2 billion of stock, Kohl's said.

The buyback is Kohl's first since it sold shares to the public in 1992. Kohl's affirmed plans to open up to 85 stores this year and about 500 locations in the next five years as it expands sales to middle-income consumers and offers more private-label apparel.

Kohl's previously had predicted that it would earn up to $2.85 a share in the fiscal year that ends next January. The average estimate of 24 analysts surveyed by Thomson Financial is $2.80.

Other retailers, including Federated Department Stores Inc., have sold their credit-card units to focus on retailing. Citigroup Inc. bought 17 million accounts last year from Federated for $4.9 billion.

Customers holding Kohl's credit cards won't be affected by the transaction, the company said. Kohl's and JPMorgan have entered into a five-year agreement under which Kohl's will continue to handle all customer service for cardholders as well as all marketing and advertising.

Chief executive R. Lawrence Montgomery is adding private and exclusive brands such as the Quiksilver clothing line by skateboarder Tony Hawk to attract middle-income shoppers.

Strong clothing sales and tighter inventory control helped the company beat analysts' estimates when it reported last month that its fourth-quarter profit rose 18 percent to $374.9 million, or $1.08 a share. Revenue climbed 14 percent to $4.65 billion.

Shares of Kohl's increased $1.73, or 3.5 percent, to close at $50.53 yesterday on the New York Stock Exchange. They had fallen 6.5 percent in the past year.

Separately, JPMorgan introduced yesterday pre-paid debit cards for payment of tax refunds to low-income individuals without bank accounts.

The new Chase Direct Benefit Card allows taxpayers to get their refund in a debit card instead of a paper check, eliminating check cashing fees and allowing consumers to use them at stores, ATMs and online, JPMorgan said.

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