Target Hits the Mark

As expected, TargetTGT continues to hit the bull's-eye with its performance.

The retailer's first-quarter results handily topped estimates, thanks in part to solid inventory control and healthy same-store sales growth.

Target's management even managed to achieve the impossible and largely quell the fears of this gloomy Gus analyst.

I can be a nattering nabob of negativity, and in my earnings preview on Target, I raised two potential concerns: the company's margins and its credit card business.

Margins were impressive. I'll get to that in a moment. But first let's discuss the company's credit card business, which is becoming an increasing percentage of revenue. In my glass-half-empty world, that's the one red flag.

First-quarter revenue totaled $14.04 billion, with credit card revenue comprising $418 million of that total. The $418 million represented a 13% growth rate over last year, when the company logged 21% growth in credit revenue.

I'm actually relieved to see the growth rate slow. While credit revenue is a nice and profitable addition to the income statement, I don't want to see Target get away from its core business as a merchant.

Credit card contribution to earnings before taxes, or EBT, drifted higher by 13 basis points to 13.44%, as the net interest margin on that segment ticked up. This a highly profitable business; while it contributed less than 3% to revenue, it made up more than 13% of Target's EBT.