With concerns about a U.S. recession lingering, major U.S. department store chains have posted results that beat market expectations one after another, drawing attention to the reasons behind the performance.
According to U.S. business media CNBC, Macy's, the largest department store chain in the United States, said on the 3rd that it released third-quarter results showing revenue of $4.71 billion (about 6.9279 trillion won). That beat the market consensus of $4.62 billion (about 6.7955 trillion won). Macy's adjusted earnings per share (EPS) were also $0.09, far exceeding market expectations for a $0.14 loss.
Last month, Kohl's, a U.S. department store chain, also reported third-quarter revenue of $3.4 billion (about 5.7 trillion won) and earnings per share of $0.10, topping market expectations. Analysts had projected Kohl's EPS would be negative. Based in Wisconsin, Kohl's is the largest mid- to low-priced department store chain, with more than 1,100 stores across the United States.
A key driver of the strong results for major U.S. department stores is their own branded credit card businesses. The Financial Times (FT) reported on the 8th that "Macy's and Kohl's, which boast some of the largest among listed corporations, do not hold their own credit card portfolios, but are generating remarkably large operating profits through profit-sharing agreements with partner banks."
These retailers' branded cards target consumers short on cash with upfront discounts and various perks. In return, department stores are raking in massive revenue through high credit card interest rates. According to the Federal Reserve (Fed), the national average interest rate on credit cards is about 20%, while department store cards exceed 30%.
At Macy's, credit card revenue accounted for only 3% of total sales last year, but made up 62% of the group's operating profit. The share of credit card revenue rose about 10 percentage points (P) from 53% in 2023. Industry watchers say Kohl's would have posted an operating loss without its credit card business.
FT said, "For retailers struggling with declining foot traffic at brick-and-mortar stores, online competition, and tariff burdens, interest revenue is helping offset declines in sales and profitability." For the same reason, U.S. electronics retailer Best Buy, lingerie brand Victoria's Secret, and big-box chain Target are also earning 10% to 26% of their total operating profit from credit card businesses.
However, the high reliance on credit card businesses, which are sensitive to economic conditions, is also seen as increasing risk. FT noted, "If consumer credit weakens and card usage falls or arrears rise, the situation could change," adding, "It is not only consumers who would shoulder greater-than-expected risks."