House of Fraser unveiled plans yesterday to hand control of its store card over to Barclaycard in return for an upfront cash payment of £25m and its first-ever share of profits from the loyalty card.
Shares in the department store group surged 7 per cent at the prospect of the cash injection, closing up 3p at 120p.
The lucrative deal will take effect from June 2007 when an existing agreement with GE Capital expires. House of Fraser and Barclaycard will set up a joint venture, sharing all profits on a 50:50 basis. It will receive an initial £6m instalment from Barclaycard in January.
Analysts believe the deal will boost House of Fraser's income by about £10m per year. The best it can get from its agreement with GE Capital is an annual bonus, worth an expected £2m or so this year.
John Coleman, the chief executive, said the group would launch new products, including a credit card with a lower interest rate. He denied the decision to switch to Barclaycard had anything to do with the competition inquiry that branded store cards uncompetitive, dismissing the OFT investigation as a "storm in a teacup".
The group announced its deal with Barclaycard alongside narrower interim losses. Excluding the profit boost from selling some stores, losses before tax for the six months to end July were £2.5m against £3.1m the previous year.
Like-for-like sales in the first half were flat, but the gross margin advanced 50 basis points as more full-price stock was sold. In the past eight weeks underlying sales have risen 1.3 per cent, but the gross margin increased just 30 basis points.