It's a move that Wall Street investors have urged the company to do for more than a decade. But not everyone thinks the retailer will have clear sailing.
The transaction will "expose Target Stores for the lackluster growth vehicle we believe it has become," says Eric Beder, a securities analyst at JB Hanauer & Co. He says Target faces some tough comparisons in the coming quarters, and will have a difficult time reaching its goal of a 15% earnings growth.
Wall Street has long wanted Target to focus on its discount store business, and shedding Mervyn's and Marshall Field's clearly satisfies that desire. Some analysts expect Target will be left a faster growing company with less reliance on seasonal sales and less exposure to cyclical economic risks that came with the department store divisions.
But Beder doesn't see any magic benefits from the sales. He argues that Target already has long been intensely focused on its discount business, perhaps to the detriment of its department store chains. He thinks that in selling the two divisions, Target is giving up one of the most profitable parts of its fastest growing business--credit cards.
Target will get $5.3 billion for selling the two divisions. The company has said it will buy back $3 billion of its shares over the next two or three years and pay down an unspecified amount of debt.
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