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    TGT
    Earnings call· Jul 2025(Q2 FY26)

    TARGET CORP TGT

    Aug 20, 2025 Source

    Executive summary

    Target Q2 FY26 — CEO Succession and Strategic Refocus Amidst Sequential Improvement

    Target announced CEO succession with Michael Fiddelke taking the helm, signaling a strategic refocus on merchandising authority, elevated guest experience, and technology. The company reported sequential improvement in Q2 sales trends, particularly in stores and digital, while navigating a volatile tariff environment. Management emphasized urgency to return to profitable growth through internal process optimization and leveraging core strengths, despite acknowledging current performance falls short of aspirations.

    Highlights

    5

    • Comparable sales declined 1.9%, representing a nearly 2 percentage point improvement from Q1.

    • Digital comparable sales grew 4.3%, with same-day delivery increasing more than 25%.

    • FUN 101 (Hardlines) categories grew over 5%, marking the strongest quarterly comparable sales in this category since 2021.

    • Trading card sales were up nearly 70% year-to-date, on track to exceed $1 billion in sales this year.

    • SG&A dollars were 0.1% lower year-over-year, driven by strong expense control across the organization.

    Concerns

    5

    • Comparable sales declined 1.9% in Q2 FY26.

    • Gross margin rate was 1 percentage point lower year-over-year, primarily due to 210 basis points of pressure from inventory adjustment costs and tariff-related costs.

    • GAAP and Adjusted EPS declined to $2.05 in Q2 FY26, compared to $2.57 a year ago.

    • Full-year comparable sales guidance anticipates a low single-digit decline.

    • No share repurchases were made in Q2 FY26 due to uncertainties, most notably from tariffs.

    Guidance & targets

    4
    CategoryTargetConfidence
    Full year CapEx
    $4 billion range
    high materiality
    High
    Full year Comparable Sales
    low single-digit decline
    high materiality
    Medium
    Full year GAAP EPS
    $8 to $10
    high materiality
    Medium
    Full year Adjusted EPS
    approximately $7 to $9
    high materiality
    Medium

    Operational metrics

    18
    Digital comparable sales growth
    4.3%grew
    Q2 FY26

    Comparable sales growth in the digital channel.

    Same-day delivery growth
    >25%grew
    Q2 FY26

    Growth in same-day delivery services.

    FUN 101 (Hardlines) comparable sales growth
    >5%growth
    Q2 FY26

    Comparable sales growth for the transformed Hardlines categories.

    Trading card sales growth
    nearly 70%up
    YTD FY26

    Year-to-date sales growth for trading cards.

    Trading card sales
    >$1 billionon track to deliver
    FY26

    Expected annual sales for trading cards.

    Women's denim comparable sales growth
    28%comp
    Q2 FY26

    Comparable sales growth for women's denim.

    Beverage business comparable sales growth
    6.5%comp
    Q2 FY26

    Comparable sales growth for the beverage business.

    Beauty core assortment growth
    low single digitsgrew
    Q2 FY26

    Growth in core beauty categories, representing over 95% of total beauty sales.

    Net sales change
    0.9%down from a year ago
    Q2 FY26

    Year-over-year change in net sales.

    Non-merchandise sales growth
    double-digitgrowth compared with last year
    Q2 FY26

    Growth in non-merchandise sales categories.

    SG&A dollars change
    0.1%lower than a year ago
    Q2 FY26

    Year-over-year change in Selling, General & Administrative expenses.

    After-tax Return on Invested Capital (ROIC)
    14.3%
    Trailing 12 months through Q2 FY26

    Measures the quality of investment decisions over time.

    Dividends returned to shareholders
    $500 million
    Q2 FY26

    Amount of dividends paid to shareholders in the quarter.

    Q3 per share dividend increase
    2%increase
    Q3 FY26

    Increase in the upcoming third quarter per share dividend.

    Inventory change
    2%higher than a year ago
    Q2 FY26

    Year-over-year change in ending inventory value.

    Inventory units change
    low single-digit declineversus last year
    Q2 FY26

    Year-over-year change in inventory units.

    AI licenses deployed
    >10,000
    Since last earnings call

    Number of new AI licenses deployed across the team to improve forecasting and efficiency.

    Market share performance
    14gained or held share
    YTD FY26

    Number of subcategories where Target gained or held market share year-to-date.

    Industry KPIs

    9
    MetricValueDetails
    Sg a rate0.1%%
    Marketplace 3p GMVdouble-digit%
    Gross margin drivers1 percentage point lower%
    Warehouse store club countNearly 2,000stores
    Comparable same store sales-1.9%%
    E commerce digital sales growth4.3%%
    Advertising retail media revenuedouble-digit%
    Private label own brand penetration$31 billionUSD
    Category level comps and inflation deflationlow single digits%

    Product announcements

    1
    ProductTypeDetails
    Champion for Target collaborationlaunch

    Deals & partnerships

    1
    Ulta BeautyRetail partnership for beauty products within Target storesconcludes August 2026

    Mutually agreed not to renew the partnership when it concludes. Target sees an opportunity to repurpose the space to meet changing consumer needs in beauty.

    Capital programs

    2
    New store openingsunderway

    New stores, often big box targets, are exceeding expectations in terms of performance. The company continues to put capital to work for new store openings in new markets.

    Store remodelsunderway

    Benefit: expand categories (e.g., food), modernize merchandising

    Several hundred stores do not yet have the latest design and thinking. Remodels are an important step to expand categories and modernize merchandising.

    Risks & headwinds

    3
    Tariff environmentshort-term pressure on P&L this year

    210 basis points of pressure on gross margin rate in Q2 from tariff-related costs (including purchase order cancellation costs)

    Mitigation: Diversifying country of production, evolving assortment, negotiating with partners, price as a last resort. Expect to end the year in a healthy position and move beyond uncertainty in 2026.

    Consumer discretionary spending pullbackongoing

    Consumer being choiceful with spend, inflationary pressure across household spending leading to pullback in discretionary categories.

    Mitigation: Focus on providing value (inclusive of price), style, and newness to cut through and prompt purchase even in a tough environment.

    Gross margin pressure from inventory adjustmentsQ2 FY26 (completed)

    Part of the 210 basis points of pressure on gross margin rate in Q2 from inventory adjustment costs related to Q1 sales slowdown.

    Mitigation: All necessary inventory adjustments were completed in the first half of the year, expecting more favorable comparisons in the back half.

    What to watch in Q3 FY26

    5

    Comparable sales growth

    Back half of the year and into next year
    Current-1.9% (Q2 FY26)
    TargetImprovement towards positive comps

    Why it matters

    This is a core indicator of business health and the company's ability to return to profitable growth.

    We need to build on that momentum as we look at the back half of the year and into next year.

    Q&A highlights

    7

    What price increases were implemented in Q2 due to tariffs, and what are the expectations for the second half of the year regarding pricing?

    Management stated they are mitigating the vast majority of tariff impacts through diversifying production, evolving assortment (e.g., Bullseye's Playground), and negotiating with partners. Price increases are a last resort, with a commitment to competitive pricing and offering value through owned brands. The team's efforts have enabled reiteration of full-year EPS guidance despite tariff volatility.

    “We are employing several different strategies including diversifying country of production, in some cases, evolving our assortment. A good example of that is Bullseye's Playground, which we've committed to price points of $1, $3 and $5.”

    asked by Katharine McShane · answered by Richard Gomez

    2 min read6 chapters

    Detailed Narrative

    01

    CEO Succession and Strategic Refocus

    Brian Cornell announced Michael Fiddelke as the next CEO, effective at the start of FY26, following a rigorous succession planning process. Fiddelke outlined three key priorities: reestablishing merchandising authority, elevating the guest experience, and leveraging technology to improve speed and efficiency. This transition aims to build new momentum and return the business to profitable growth, acknowledging that recent performance has fallen short of expectations.

    02

    Tariff Mitigation and Inventory Management

    Target faced significant financial and operational hurdles due to higher tariffs and policy changes. A cross-functional team rapidly implemented revisions to product, inventory, sourcing, and pricing plans to mitigate impact. While short-term pressure is expected, the company anticipates ending the year in a healthy position. Inventory adjustments planned for the first half are complete, with Q2 ending inventory up 2% (units down low single-digits) due to investments in frequency categories and higher product costs.

    03

    Q2 Performance and Category Strengths

    The second quarter showed sequential improvement, with comparable sales down 1.9%, a nearly 2 percentage point improvement from Q1. Digital comparable sales grew 4.3%, driven by same-day delivery. Performance was notably strong in 'FUN 101' (Hardlines), which saw over 5% comp growth, and trading cards, up nearly 70% YTD. Apparel, food and beverage, and beauty categories also showed bright spots driven by newness and style-forward products.

    04

    Technology and Operational Efficiency Initiatives

    The Enterprise Acceleration Office, led by Michael Fiddelke, is focused on improving speed and agility. Initiatives include addressing legacy technology, automating manual work, clarifying accountabilities, and improving data access. Over 10,000 new AI licenses have been deployed to enhance forecasting and free up team members. The company is also reevaluating team structures and processes at headquarters and encouraging more in-person collaboration.

    05

    Capital Allocation and Store Strategy

    Target's capital allocation priorities remain consistent: investing in the business, supporting the dividend, and share repurchases. Approximately $1.9 billion has been invested in CapEx year-to-date, with a full-year target of $4 billion for new stores, remodels, supply chain, and technology. New store openings are exceeding expectations. The strategy team will continue to leverage stores as efficient omnichannel fulfillment hubs, with tests in Chicago showing promising results for optimizing store roles.

    06

    Partnerships and Brand Differentiation

    Target aims to lean further into its role as an accessible partner for other brands and retailers, building on existing relationships with Apple, Starbucks, and Champion. The company mutually agreed not to renew its partnership with Ulta Beauty when it concludes in August 2026, seeing an opportunity to repurpose the space for evolving consumer needs. The new Champion for Target collaboration, featuring over 500 items, has shown strong initial sales trends.

    AI-generated summary of the company’s earnings call. Not investment advice.