We’ve been bears on TGT for most of this year under the premise that the financial engineering over the past two years left the company without the resources to achieve its aggressive top line growth goals while improving margin – and that’s regardless of any erosion in the Macro climate. You simply can’t stave off Ackmanism by way of cutting costs and expect that to be a good platform for growth. This quarter was another piece of evidence in that chain.  Operating EPS was weak by most measures, with the entire beat – and then some – coming from better results out of the credit portfolio. ‘And then some’ is probably an understatement. We’re talking $83mm year on year – that’s about $0.08 per share, or 8% yy EPS growth. We don’t want to take this away from TGT by any means, as this is a real earnings contributor. But in 1Q of next year, we have to ask ourselves if there’s any mathematical way to get another $83mm in upside in the credit portfolio without pinching retail? Again, one of our macro concerns in retail is that our bearish outlook in 2H proves false as the consumer takes down the current 5% personal savings rate in order to fuel its spending addiction. That’s worked in the past when interest rates were heading South. But if we’re sitting here later in the year with the personal savings rate and interest rates BOTH near zero, AND with TGT having made its quarters by way of lowering its bad debt expense, it simply does not give us that warm and fuzzy feeling in our gut.

TGT: Aweful Quality Beat                     - TGT S 5 18 11