TARGET CORP (TGT) Q1 2026 Earnings Summary

Executive Summary

Q1 2026 printed mixed results: Net Sales $23.85B (-2.8% YoY), GAAP EPS $2.27 boosted by $0.97 interchange litigation benefit; Adjusted EPS $1.30, with comps down 3.8% on weaker traffic and higher markdowns .
Versus S&P Global consensus, revenue missed ($23.85B vs $24.35B*) and Adjusted EPS missed ($1.30 vs $1.65*), while GAAP EPS superficially “beat” due to the one-time $0.97 credit; management emphasized the Adjusted view as the better measure of ongoing profitability .
Guidance was lowered: from Q4 2025’s FY2025 EPS $8.80–$9.80 and ~1% sales growth to FY2025 GAAP EPS $8–$10, Adjusted $7–$9 and a low-single-digit sales decline; the “Enterprise Acceleration Office” was launched to speed execution amid tariff uncertainty and soft discretionary demand .
Key near-term catalysts include the acceleration office, strong limited-time “kate spade for Target” collaboration, and Target Circle 360’s same-day delivery expansion with no price markups across Shipt’s marketplace; risks include tariffs, inventory rightsizing costs, and continued discretionary softness .

What Went Well and What Went Wrong

What Went Well
- Same-day delivery surged ~36% YoY, with mid-single digit first-party digital growth and continued Drive Up strength; management highlighted benefits flowing to Roundel and Target Plus from rising digital engagement .
- Inventory shrink improved materially, contributing ~120 bps of gross margin favorability; management expects “vast majority” of prior shrink headwinds to be clawed back over the year .
- Designer collaboration performance: kate spade drove Target’s strongest limited-time partnership in a decade, evidencing consumer receptivity to style-forward value propositions (“Tar-zhay magic”) .
What Went Wrong
- Topline softness: comps -3.8% with traffic -2.4% and average ticket -1.4%, driven by discretionary weakness and higher markdowns to rightsize inventory; gross margin fell ~60 bps YoY .
- Stores underperformed (store-originated comps -5.7%), partially offset by digital comps +4.7%; SG&A rate ex-settlement deleveraged to 21.7% on lower sales and team investments .
- Tariff uncertainty and demand elasticity risks: management expects to offset the “vast majority” of tariffs via sourcing diversification and vendor negotiation, but still lowered FY2025 Adjusted EPS guidance to $7–$9 amid heightened macro/tariff headwinds .

Financial Results

Metric	Q3 2025	Q4 2025	Q1 2026
Revenue/Net Sales ($USD Billions)	$25.67	$30.92	$23.85
Diluted EPS (GAAP, $)	$1.85	$2.41	$2.27
Adjusted EPS (Non-GAAP, $)	$1.85	$2.41	$1.30
Gross Margin Rate (%)	27.2%	26.2%	28.2%
SG&A Expense Rate (%)	21.4%	19.4%	19.3%
Operating Income Margin Rate (%)	4.6%	4.7%	6.2%
Operating Margin ex-litigation (%)	N/A	N/A	3.7%
Comparable Sales (%)	+0.3%	+1.5%	-3.8%
Traffic (YoY %)	+2.4%	+2.1%	-2.4%
Digital Comparable Sales (YoY %)	+10.8%	+8.7%	+4.7%

Notes: Q1 2026 GAAP EPS includes $0.97 benefit from interchange fee settlements; Adjusted EPS excludes this item . SG&A and operating margin rates include settlement gains in Q1, with ex-settlement SG&A rate 21.7% .

Actual vs S&P Global Consensus

Metric	Consensus	Actual	Surprise
Revenue ($USD Billions)	$24.35*	$23.85	Miss
EPS (Primary/GAAP, $)	$1.65*	$2.27	Beat (litigation)
EPS (Adjusted, $)	$1.65*	$1.30	Miss

Values with asterisks retrieved from S&P Global.

Segment Breakdown – Q1 2026 (Net Sales by Category)

Category ($USD Millions)	Q1 2024	Q1 2025
Apparel & accessories	$3,897	$3,711
Beauty	$3,119	$3,101
Food & beverage	$5,853	$5,902
Hardlines	$3,160	$3,074
Home furnishings & décor	$3,519	$3,220
Household essentials	$4,549	$4,357
Advertising revenue	$130	$163
Credit card profit sharing	$142	$141
Other	$116	$137
Net Sales	$24,531	$23,846

Key KPIs (Channel Mix, Fulfillment, ROIC)

KPI	Q1 2024	Q1 2025
Stores-originated sales mix (%)	81.7%	80.2%
Digital-originated sales mix (%)	18.3%	19.8%
Stores-fulfilled share (%)	97.7%	97.6%
Target Circle Card penetration (%)	18.0%	17.4%
Same-day delivery growth (YoY)	—	~36%
After-tax ROIC (TTM, %)	15.4%	15.1%

Guidance Changes

Metric	Period	Previous Guidance (Q4 2025, Mar 4)	Current Guidance (Q1 2026, May 21)	Change
Net Sales growth	FY 2025	~+1% (comps ~flat)	Low-single digit decline	Lowered
GAAP EPS	FY 2025	$8.80–$9.80	~$8.00–$10.00	Widened, lower midpoint
Adjusted EPS	FY 2025	$8.80–$9.80	~$7.00–$9.00 (ex-litigation)	Lowered range
Operating margin rate	FY 2025	Modest increase vs FY2024	Implied pressure near term; litigation offsets GAAP	Weaker near-term trajectory
Effective tax rate	FY 2025	23–24%	Q1 actual 25.0% (discrete items)	Near-term higher actual
CapEx	FY 2025	—	~$4–$5B, now near lower end based on timing	New color; lower end

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2025, Q4 2025)	Current Period (Q1 2026)	Trend
Digital fulfillment & speed; same-day services	Digital comps +10.8% (Q3) and +8.7% (Q4); growing same-day services	Same-day +36%; >70% of Q1 digital orders fulfilled within a day; click-to-deliver ~20% faster YoY	Acceleration in speed; strong same-day adoption
Tariffs & macro uncertainty	Cautious outlook into Q1; consumer softness noted (Q4)	Extensive tariff mitigation via sourcing diversification, vendor negotiations; aim to offset “vast majority”	Rising focus; mitigation in flight
Inventory shrink & reliability	Lower book-to-physical adjustments helped GM (Q3)	~120 bps shrink favorability; expected recovery of vast majority of past headwinds	Improving shrink trajectory
Enterprise Acceleration Office; technology/AI	Investments in digital, supply chain (Q4)	New acceleration office to streamline operations and harness technology/AI for speed	New structural initiative
Product/assortment performance	Beauty/Apparel strength (Q4)	kate spade collaboration strongest in a decade; seasonal moments (Valentine’s/Easter) outperformed	Style-forward value resonates
Retail media (Roundel) & Target Plus	Advertising/marketplace growth aiding margins (Q4)	Roundel and Target Plus both double-digit growth; Target Plus GMV ambition to $5B by 2030	Ongoing growth engines

Management Commentary

Strategy and tone: “We’re not satisfied with current performance…we announced the establishment of a multi-year acceleration office…to drive long-term profitable growth” .
Demand signals: “Mid-single-digit growth in our first-party digital business…36% growth in same-day delivery…continued healthy growth in Drive Up” .
Tariff mitigation: “We feel that we can offset the vast majority of the tariff impact” through sourcing diversification and vendor partnerships; China exposure in own brands down from ~60% in 2017 to ~30%, targeting <25% by end of next year .
Operating disciplines: “Average click to deliver speed was nearly 20% faster…we fulfilled more than 70% of all Q1 digital orders within a day” .
Profit drivers and headwinds: Gross margin pressured by merchandising (markdowns) and digital fulfillment costs, partially offset by lower shrink; Adjusted EPS $1.30 vs $2.03 last year after removing $0.97 litigation benefit .

Q&A Highlights

Comps and margin cadence: Management expects low-single-digit sales declines through the balance of FY2025, with inventory and receipt adjustment costs largely first-half weighted; shrink tailwinds should persist, recapturing most of prior headwinds .
Tariffs and pricing: Guidance ($7–$9 Adjusted EPS) embeds tariff uncertainty and aims to mitigate most impacts without resorting to price hikes; pricing elasticity and markdown risk acknowledged .
In-store traffic and value positioning: Focus on retail fundamentals (in-stocks, service), style-forward value, and seasonal moments to drive traffic; price gaps viewed as comfortable; expanding Target Circle 360 benefits (no markups across >100 Shipt retailers) to reinforce value .
Guidance risk framing: Wider Adjusted EPS range reflects economic and tariff uncertainty; tailwinds from shrink/productivity provide “oxygen” to keep investing .

Estimates Context

Q1 2026 vs consensus: Revenue $23.85B vs $24.35B* (miss), Adjusted EPS $1.30 vs $1.65* (miss), GAAP EPS $2.27 (beat due to $0.97 one-time benefit) .
Prior quarters: Q3 2025 revenue $25.67B vs $25.90B*, EPS $1.85 vs $2.30* (miss); Q4 2025 revenue $30.92B vs $30.84B*, EPS $2.41 vs $2.25* (beat) .
Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

Near-term setup: Expect continued topline pressure and inventory adjustment costs in H1, but shrink recovery and cost discipline are credible offsets; reduced FY2025 Adjusted EPS range ($7–$9) now reflects tariff scenarios and macro uncertainty .
Read-through on quality of earnings: Focus on Adjusted EPS ($1.30) rather than GAAP ($2.27) given the $0.97 interchange settlement; margin headwinds centered on markdowns and digital fulfillment costs despite shrink relief .
Execution catalyst: The Enterprise Acceleration Office and explicit technology/AI focus aim to improve speed, inventory processes, and fulfillment efficiency—watch for tangible KPIs (delivery speed, same-day mix, in-stock levels) in coming quarters .
Digital-led monetization: Continued growth in Roundel and Target Plus supports margin mix; Circle 360’s no-markup expansion across Shipt’s marketplace may drive membership engagement and basket consolidation .
Merchandising proof points: Limited-time collabs (kate spade) and seasonal events show demand can be activated in discretionary categories via style + value; monitor the summer “100 days” and back-to-school execution .
Risk monitor: Tariff outcomes and discretionary elasticity remain the key swing factors; inventory rightsizing implies near-term markdown risk but should strengthen the back-half position .
Medium-term thesis: If acceleration efforts translate to faster, leaner operations and digital monetization scales, Target’s cross-category model and stores-as-hubs fulfillment advantage can reflate comps/margins into FY2026 .