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TARGET CORP (TGT) Q3 2026 Earnings Summary

Executive Summary

  • Q3 2026 was mixed: revenue of $25.27B (-1.5% YoY) with comparable sales down 2.7% as discretionary softness offset growth in Food & Beverage and “FUN 101” hardlines; Adjusted EPS of $1.78 beat S&P Global consensus ($1.71), while revenue slightly missed ($25.285B vs $25.270B) *.
  • Gross margin held at 28.2% (-10 bps YoY) as higher markdowns were largely offset by lower shrink (~70 bps) and supply chain/fulfillment efficiency (~20 bps); operating margin contracted to 3.8% including restructuring costs .
  • Guidance tightened: Q4 sales still expected to decline low-single digits; FY 2025 GAAP EPS narrowed to $7.70–$8.70 and Adjusted EPS to ~$7.00–$8.00 (down from $8.00–$10.00 GAAP and $7.00–$9.00 Adjusted in Q2) .
  • Stock-relevant catalysts: cost discipline and improving shrink, strong same-day delivery growth (>35%) and AI-driven initiatives (ChatGPT integration, gift finder) support omni-channel engagement; but continued discretionary weakness and markdown pressure weigh on margins .

What Went Well and What Went Wrong

What Went Well

  • FUN 101 hardlines delivered growth, led by nearly 10% comps in toys and double-digit gains in music/video games/sporting equipment, validating design-led newness strategy .
  • Same-day delivery grew >35% and digital comps rose 2.4%, with Target Plus marketplace GMV up ~50% and Roundel ad sales up mid-teens, broadening non-merchandise revenue streams .
  • Management highlighted AI/technology advances (Target Trend Brain, synthetic audiences, ChatGPT commerce) to accelerate merchandising, personalization and fulfillment speed, positioning for future growth: “Technology is helping define Target as a company that doesn’t just use AI, but runs on AI” (Prat Vemana) .

What Went Wrong

  • Top line remains pressured: comps -2.7% with store comps -3.8% as discretionary categories (home, apparel) lag; apparel comps -5% despite pockets of strength .
  • Gross margin down ~10 bps YoY on increased markdowns (~100 bps pressure), only partially offset by lower shrink (~70 bps) and supply chain benefits (~20 bps); operating margin rate fell to 3.8% (4.4% ex. non-recurring) .
  • Management acknowledged volatility by month (August ~flat, September ~-4%, October ~flat), cautious consumer sentiment and tariff-related cost pressures; adjusted FY EPS range moved to the bottom half of prior range .

Financial Results

Consolidated Performance vs prior quarters and YoY

MetricQ1 2026Q2 2026Q3 2026
Revenue ($USD Billions)$23.846 $25.211 $25.270
GAAP Diluted EPS ($)$2.27 $2.05 $1.51
Adjusted Diluted EPS ($)$1.30 $2.05 $1.78
Gross Margin Rate (%)28.2% 29.0% 28.2%
EBIT/Operating Margin Rate (%)6.2% 5.2% 3.8% (4.4% ex. items)
Operating Income ($USD Billions)$1.472 $1.317 $0.948
EBITDA ($USD Billions)$2.285 $2.104 $1.747

Actual vs S&P Global Consensus (Q3 2026)

MetricConsensusActual
Revenue ($USD Billions)$25.285*$25.270
Primary EPS ($)$1.71*$1.78 (Adjusted)
# of EPS Estimates30*—
# of Revenue Estimates26*—

Values with asterisks are retrieved from S&P Global.

Segment Net Sales (Merchandising categories)

Category ($USD Billions)Q3 2025Q3 2026
Apparel & accessories$4.003 $3.838
Beauty$3.226 $3.232
Food & beverage$5.917 $6.008
Hardlines (FUN 101)$3.152 $3.190
Home furnishings & décor$4.185 $3.908
Household essentials$4.715 $4.542
Other merchandise sales$0.030 $0.034
Advertising revenue (Roundel)$0.167 $0.241
Credit card profit sharing$0.148 $0.119
Other$0.125 $0.158
Total Net Sales$25.668 $25.270

KPIs and Sales Metrics

KPIQ3 2025Q2 2026Q3 2026
Comparable Sales Change (%)+0.3% -1.9% -2.7%
Traffic (Transactions) Change (%)+2.4% -1.3% -2.2%
Average Ticket Change (%)-2.0% -0.6% -0.5%
Store-Originated Comparable Sales (%)-1.9% -3.2% -3.8%
Digitally Originated Comparable Sales (%)+10.8% +4.3% +2.4%
Merchandise Sales Digitally Originated (%)18.5% 18.9% 19.3%
Same-Day Delivery Growth (%)—>25% >35%
Target Circle Card Penetration (%)17.7% 16.9% 16.9%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Sales (comparable)Q4 2025Low-single digit decline (maintained) Low-single digit decline (maintained) Maintained
GAAP EPS ($)FY 2025$8.00 – $10.00 $7.70 – $8.70 Narrowed/Lowered
Adjusted EPS ($)FY 2025~$7.00 – $9.00 ~$7.00 – $8.00 Narrowed to bottom half
Notes on adjustmentsFY 2025Interchange fee settlements (-$0.97) Interchange fee settlements (-$0.97); Business transformation costs (+$0.26) Updated drivers

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2026, Q2 2026)Current Period (Q3 2026)Trend
AI/Technology initiativesEmphasis on acceleration office and digital penetration; Q1 gross margin pressure from digital fulfillment GenAI “Target Trend Brain,” synthetic audiences, AI gift finder; ChatGPT shopping app; expanded next-day shipping footprint Accelerating adoption and consumer-facing features
Supply chain & in-stocksQ1 noted new supply chain facilities and digital fulfillment costs On-shelf availability of top 5,000 items improved >150 bps YoY; ML-based forecasting; market-based fulfillment pilots Improving fundamentals, continued focus
Tariffs/macro & consumerQ2 cited tariff pressures and cautious consumer Volatility by month; cautious sentiment; management navigating tariffs and uncertainty Persistent headwind
Category performanceQ1/Q2: improvements in stores, strong designer collab; Q2 Nintendo Switch 2 lift FUN 101 up, toys ~+10% comps; beverages ~+7%; apparel -5% but denim/sleepwear strength Mixed; essentials/frequency strong, discretionary lag
Non-merchandise monetizationRoundel/Marketplace growing (Q2 non-merch +14%) Roundel mid-teens growth; Marketplace GMV ~+50% Strengthening diversification
Restructuring/efficiencyQ1 settlements benefited SG&A; Q2 discipline ~1,800 HQ roles eliminated; ~$180M expected annualized savings for reinvestment Structural changes underway

Management Commentary

  • “We have high but achievable aspirations…solidify our design-led merchandising authority…offer a more consistently elevated experience…more fully use technology” (Michael Fiddelke) .
  • “On-shelf availability of our 5,000 top items…saw a more than 150 basis point improvement compared to this time last year” (Michael Fiddelke) .
  • “FUN 101 delivered another quarter of growth, led by a nearly 10% comp in toys…” (Rick Gomez) .
  • “Shrink improvements will account for approximately 80–90 bps of gross margin rate favorability for the full year” (Jim Lee) .
  • “Target will offer a complete shopping experience through its app in ChatGPT…multi-item purchases…fresh food…drive up, pick up or shipping” (Prat Vemana and OpenAI partnership) .

Q&A Highlights

  • Margin reset question: Management prefers targeted investments and operating model changes (market-based fulfillment, store remodels/new stores) rather than a broad margin reset; rollout to 35 more markets underway .
  • CapEx and investment priorities: 2026 CapEx ~+25% to ~$5B for store experience, remodels, technology, digital fulfillment, and new stores; ~$180M annualized savings from transformation to reinvest .
  • Inventory/in-stocks cadence: Inventory positioned conservatively in discretionary; in-stocks improving with >150 bps gain on top items and better weekend/day-end reliability .
  • Loyalty and card penetration: Large Circle base with Circle 360 membership fueling same-day; opportunity to better convert Circle members to Circle card over time .
  • Dividend commitment: Dividend remains second capital priority (after investing in the business), with repurchases flexed based on conditions .

Estimates Context

  • Q3 2026 results vs S&P Global consensus: Adjusted EPS $1.78 beat $1.71; revenue $25.27B slightly missed $25.285B; 30 EPS and 26 revenue estimates informed consensus*.
  • Implications: Modest EPS beat driven by cost control, lower shrink and supply chain efficiency despite markdown pressure; slight revenue miss aligns with discretionary softness and traffic declines. Near-term estimate revisions may focus on margin cadence (markdowns vs shrink gains), digital mix impacts on fulfillment costs, and top-line trajectory given maintained low-single digit decline outlook *.

Values with asterisks are retrieved from S&P Global.

Key Takeaways for Investors

  • Margin quality improving: Shrink trending back to pre-pandemic (80–90 bps FY favorability) and fulfillment productivity gains partially offset markdowns; watch gross margin mix and markdown intensity into holiday .
  • Omni-channel moat widening: >35% same-day growth, marketplace and ad monetization strength, and AI-led consumer experiences (Gift Finder, ChatGPT app) deepen engagement and diversify revenue .
  • Category mix still a headwind: Frequency (Food & Beverage, Beauty) solid; discretionary softness (home, apparel) persists—positioning inventory conservatively into Q4 is prudent .
  • Structural cost actions: HQ restructuring and expected ~$180M annualized savings provide fuel for reinvestment in store experience, technology, and merchandising authority .
  • Guidance risk-balanced: Q4 low-single digit sales decline maintained; FY EPS ranges narrowed—suggests prudent stance amid volatile monthly trends and cautious consumer .
  • Near-term trading lens: EPS beat vs consensus and AI/omni announcements are supportive, but discretionary pressure and markdowns temper enthusiasm; holiday execution on value/newness is the swing factor .
  • Medium-term thesis: If AI-assisted merchandising, store floorpad changes (2026), and fulfillment optimization scale, Target can rebuild comps and margins while leveraging non-merchandise growth engines (Roundel, marketplace) .

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