TARGET CORP (TGT) Q2 2026 Earnings Summary

Executive Summary

• Q2 2026 results showed stabilization with sequential improvement: Net sales $25.21B (-0.9% y/y; +5.7% q/q), GAAP and Adjusted EPS $2.05 (vs $2.57 y/y; vs $2.27 GAAP in Q1), as digital comps grew 4.3% and non‑merchandise revenues rose 14.2% .
• Modest beats vs S&P Global consensus: EPS $2.05 vs $2.03*; revenue $25.21B vs $24.92B*; beats aided by cost discipline and inventory actions even as tariffs and markdowns pressured gross margin (29.0%, -100 bps y/y; +80 bps q/q) .
• Guidance held at Q2: FY2025 low-single digit sales decline; GAAP EPS $8.00–$10.00; Adjusted EPS ~$7.00–$9.00, later narrowed at Q3 to GAAP $7.70–$8.70 and Adjusted $7.00–$8.00 .
• Strategic catalysts: CEO succession to Michael Fiddelke (effective Feb 1, 2026) with three priorities—reassert merchandising authority, elevate experience, and accelerate tech (10,000+ new AI licenses deployed); “Fun 101” hardlines transformation and stronger same‑day delivery momentum .
• Set-up into 2H improved as CFO noted the vast majority of one‑time tariff and inventory adjustment costs are behind them and shrink continues to normalize (-80 bps expected benefit to FY operating margin rate) .

What Went Well and What Went Wrong

What Went Well

• Digital and services momentum: Digital comparable sales +4.3% y/y; same‑day delivery grew >25% in Q2; non‑merchandise (Roundel, membership, marketplace) +14.2% y/y .
• Merchandising traction in “Fun 101”: “We’re reshaping the assortment in an unmistakably Target way,” with Fun 101 delivering >5% comp and trading cards up nearly 70% YTD; Nintendo Switch 2 launch strong .
• Operational levers and tech: “We’ve deployed more than 10,000 new AI licenses… to build and update forecasts more accurately,” and store/fulfillment role optimization pilots showing encouraging results .

What Went Wrong

• Topline still negative: Comparable sales -1.9% (traffic -1.3%), with continued discretionary softness; stores comps -3.2% offset by digital +4.3% .
• Margin pressure from tariffs/markdowns: Gross margin 29.0% (down 100 bps y/y) “reflecting… higher markdown rates, purchase order cancellation costs, and pressure from category mix” .
• SG&A deleverage vs last year: SG&A rate 21.3% vs 21.1% y/y; operating income down 19.4% y/y to $1.32B, reflecting topline and discrete cost headwinds .

Financial Results

Key Financials (Q1 → Q2 → Q3 FY2025)

Q2 2026 vs S&P Global Consensus

Values marked with * are retrieved from S&P Global.

Segment and Revenue Mix – Q2 2026 vs Q2 2025

KPIs and Operating Metrics

Guidance Changes

Notes: Q2 reiterated FY guide; Q3 narrowed GAAP EPS range and reiterated sales view while adding more detail on shrink tailwind .

Earnings Call Themes & Trends

Management Commentary

• “We must reestablish our merchandising authority… ensure we’re bringing this authority across each category… throughout the year.” — Michael Fiddelke .
• “We’ve deployed more than 10,000 new AI licenses… to build and update forecasts more accurately while spending less time creating them.” — Michael Fiddelke .
• “The vast majority of [one‑time] tariff related costs… hit us in Q2. So you won’t see significant portions of that going forward.” — Jim Lee .
• “Digital comparable sales grew 4.3 percent… more than 25% growth in same‑day delivery powered by Target Circle 360.” — Press release .
• “Fun 101… delivered a five [percent] comp… trading card sales are up nearly 70% year to date… on track to deliver more than $1 billion in sales this year.” — Rick Gomez .

Q&A Highlights

• Pricing/tariffs: “We will take price as a last resort,” mitigating via sourcing diversification, assortment changes (e.g., $1/$3/$5 Bullseye’s Playground), and vendor negotiations; focus on value beyond price via owned brands .
• Operating model: Store role specialization pilots (some stores focus on fulfillment, others on in‑store experience) show encouraging results; rollout to 30–40 markets planned this year .
• Investment & growth: Capital to fund high‑return projects (new stores, remodels, tech) while maintaining middle‑A credit ratings; growth is the only path—taking share to drive bottom line .
• Guidance posture: Confidence to deliver $7–$9 FY Adjusted EPS reiterated amid volatility in consumer/tariffs; more favorable 2H comparisons expected .

Estimates Context

• Q2 2026 EPS: $2.05 vs consensus $2.03*; Q2 2026 revenue: $25.21B vs consensus $24.92B*; # of estimates: EPS 28*, revenue 22* (small beats on both) .
• Implication: Modest positive revisions bias to near‑term estimates could follow given sequential trend improvement (comps, digital, services) despite ongoing discretionary softness and tariff noise .
  Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

• Sequential stabilization with modest beats: Q2 EPS/Revenue topped consensus modestly*, driven by services/digital and cost discipline, while tariffs/markdowns weighed on GM .
• 2H setup improved: Most one‑time tariff and inventory adjustment costs are behind them; shrink benefit (~80 bps to FY operating margin) provides cushion .
• Strategy anchored in style authority and experience: Early traction in Fun 101 and category newness supports the merchandising pivot; expect similar playbook in Home and other categories .
• Tech acceleration is tangible: 10k+ AI licenses and store role specialization pilots target speed/efficiency and more consistent guest experience .
• Watch guidance trajectory: FY guide was maintained at Q2 and then narrowed at Q3; delivery hinges on discretionary recovery, holiday execution, and tariff path .
• Mix matters: Non‑merchandise (Roundel, membership, marketplace) growth continues to offset softer discretionary categories—sustained double‑digit growth here lifts margins/mix over time .
• Trading lens: Near‑term catalysts include sustained digital/same‑day strength, evidence of improving store traffic, and updates on the merchandising reset; risks include discretionary demand, tariff policy, and markdown intensity .