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TGT
Earnings call · Jul 2026 (Q2 FY27)

TARGET Q2 FY27 earnings call TGT

Aug 19, 2026 Source

Executive summary

Target Q2 FY27 — Strong Traffic Growth and Strategic Momentum

Target delivered strong Q2 FY27 results, driven by robust traffic growth and positive guest response to strategic merchandising and experience investments. The company is seeing encouraging momentum in priority categories, while acknowledging the multi-year effort required for certain areas like home and apparel. Management is focused on consistent execution and continued investment to drive sustainable top and bottom-line growth.

Highlights

5

  • Traffic growth increased 3.6% year-over-year, showing a slight acceleration on a 2-year basis compared to Q1.

  • Net sales rose 5.3% year-over-year to $26.5 billion.

  • Comparable sales increased 3.8%, driven by digital comparable sales growth of 8.7% and same-day delivery growth of over 25%.

  • Gross margin rate expanded by 4.7 percentage points year-over-year to 33.7%, including a significant benefit from tariff refunds.

  • Adjusted EPS reached $4.11, up from $2.05 last year, with underlying EPS (excluding tariff refunds) approximately 20% higher.

Concerns

2

  • Performance in the Home and Apparel categories is not meeting expectations and is anticipated to require continued work into 2027 and beyond.

  • SG&A expense grew 7% year-over-year, resulting in an SG&A rate of 21.6%, which was about 30 basis points higher than last year.

Guidance & targets

CategoryTargetConfidence
Full-year net sales growth
around 5%
high materiality
High
Full-year operating margin rate (excluding tariff refunds)
around 0.5 percentage point higher than last year's adjusted rate of 4.6%
high materiality
High
Full-year EPS
$9.90 to $10.90
high materiality
High
Full-year EPS (excluding tariff refunds)
midpoint represents a $0.75 increase versus the prior range
high materiality
High
Full-year Capital Expenditures (CapEx)
approximately $5 billion
medium materiality
High
Dividend payout ratio
moving towards a 40% payout ratio
medium materiality
Medium
Share repurchases
resume share repurchases
medium materiality
Medium

TGT operating KPIs by quarter

TGT operating KPIs stated on its earnings calls, by fiscal quarter
KPI Jan 2025 Q4 FY25 Jan 2026 Q4 FY26 Apr 2026 Q1 FY27This call Jul 2026 Q2 FY27Change vs prior quarter
Employees
400K+ And I want to thank our more than 400,000 incredible team members who bring this experience to life every day for our guests and whose focus and dedication continues to raise the bar on guest experience. Source transcript
400K And so I feel really good about the team that we'll take the field with, both for the leadership team and across all 400,000 of our incredible team members that are going to power the growth we expect in '26. Source transcript
400K+ With a renewed focus on what is possible and the team of more than 400,000 strong that solidly aligned behind our priorities, we're confident in our ability to deliver on our strategy and business plans, both this year and over time. Source transcript
——
Stores
<2,000 I was excited to come to Target because of the amazing brand backed by assets and scale that we can apply throughout our business, including nearly 2,000 stores served by more than 60 supply chain facilities and an experienced global sourcing organization with offices around the world; a large and diversified owned brand portfolio generating more than $31 billion in annual sales; a unique and balanced mix of 6 core merchandise categories, spanning both wants and daily needs, each of which generates well over $10 billion in annual sales; a full suite of digital fulfillment capabilities that together account for more than $20 billion in annual sales with one of the fastest-growing marketplaces in Target Plus; and one of the biggest loyalty programs in the country, Target Circle, which helps to fuel Roundel, one of the largest retail advertising businesses in the US With all these assets supporting our differentiated strategy, Target has a compelling growth opportunity in the years ahead, and I'm looking forward to sharing our progress with you over time. Source transcript
—
2,000+ And finally, we're focused on driving greater consistency across our more than 2,000 stores. Source transcript
——
New stores opened ——
7 In Q1, we opened 7 new stores, including our 2,000th location and we remain on track to open more than 30 this year. Source transcript
17 This quarter, we opened 17 new stores. Source transcript
+142.9%

Operating figures the company states on every call, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

ProductTypeDetails
Target Beauty Studioexpansion
Chief AI Officer, Chandu Nairmilestone

Deals & partnerships

OpenAI, Google Gemini Partnership with leading AI platforms to shape the future of agentic commerce.

Target became one of only a small number of retailers to partner with these platforms.

Love Shack Fancy Exclusive collaboration for the back-to-school season.

Translated the brand's aesthetic across multiple categories, with most assortment available for under $25.

Pokemon Exclusive collaboration for fandom and collectibles.

Inspired joy for fans of all ages and reinforced leadership in fandom and collectibles.

Capital programs

New Stores Program underway
Spent to date: 24 new full-size stores so far this year

Benefit:serving new neighborhoods and creating thousands of jobs; becoming a trusted new neighbor for tens of thousands of additional busy families

Already this year, we've opened 24 new full-size stores, serving new neighborhoods and creating thousands of jobs in communities we hadn't previously served.

Store Remodel Program underway
Spent to date: more than 100 full store remodels underway

Benefit:better serve guests and strengthen our business for the long term

And now we have more than 100 full store remodels underway on our way to around 130 this year.

Risks & headwinds

Underperformance in Home and Apparel categories will continue into 2027 and beyond

not where it needs to be

Mitigation:continue to drive focus and clarity on what needs to evolve there; plans laid out in the quarters to come

SG&A expense growth Q2 FY27

grew 7% versus last year; Q2 SG&A rate of 21.6% was about 30 basis points higher than last year

Mitigation:reflected higher compensation costs, including investments in additional hours and training for field teams, along with higher incentive compensation and planned spending related to capital projects

What to watch in Q3 FY27

Home category performance

Q3 FY27
Current not where it needs to be
Target Improved performance, specific changes in bedding, kids home, bath.

Why it matters

Home is a high-margin category important to Target's merchandising experience; its turnaround is a multi-year journey.

In others, including home and apparel, our performance is not where it needs to be, and the work will continue into 2027 and beyond.

Q&A highlights

Inquired about the sustainability of strong traffic growth and why Home/Apparel didn't perform better despite overall traffic gains.

Michael Fiddelke stated traffic growth reinforces guest response to changes. Cara Sylvester noted sustained growth in baby, wellness, beauty, and food/beverage. For Home/Apparel, she acknowledged dissatisfaction but highlighted positive responses where changes were made (kids apparel, decorative accessories).

“I think traffic is actually a great place to start because when we see the strong traffic response like we did in Q2, and we've seen so far this year, it's just a reinforcement to us. The guests are responding to the change that we're making and that we're earning more and more trust that's translating to more and more trips to target.”

asked by Rupesh Parikh · answered by Michael Fiddelke

2 min read 8 chapters

Detailed narrative

Strategic Priorities and Momentum

Michael Fiddelke highlighted the refreshed strategy centered on serving busy families with style, design, quality, and value, focusing on merchandising authority, guest experience, technology, and team/community. He noted encouraging momentum and increasing confidence in investments driving continued top and bottom-line growth. The strong traffic response in Q2 reinforces that guests are responding positively to the changes being made.

Merchandising Authority and Category Transformations

Cara Sylvester detailed significant Q2 transitions, including nearly half of the center store grocery assortment, a complete reimagination of the Fun 101 floor pad, and 75% of decorative accessories in home. These changes, particularly in food and beverage, Fun 101, and beauty, are driving disproportionate growth, reinforcing the strategy. Snack sales post-transition are up over 15%, LEGO sales up over 30%, and Plush sales up over 20%.

Value Proposition and Price Investments

The company emphasized its commitment to value, having lowered prices on over 10,000 items in the past year and planning additional reductions. This strategy aims to combine trend-right newness with affordability, ensuring guests find value on every trip. For back-to-school, 95% of the assortment is priced at or below last year's prices.

Technology Acceleration and AI Integration

Target is modernizing its tech foundation and investing in new capabilities for personalization, retail media, and trend identification. The company partnered with OpenAI and Google Gemini and appointed a new Chief AI Officer, Chandu Nair, to accelerate AI integration for enhanced guest experiences. Digital traffic sourced from external AI platforms is growing more than 3.5x the industry.

Operational Excellence and Inventory Reliability

Lisa Roath focused on consistency in execution, highlighting the remarkable amount of change delivered in Q2, including store transitions, remodels, and new store openings. Inventory reliability metrics reached multi-year highs, and delivery speed improved, with same-day and next-day units fulfilled up nearly 30%. The company is investing in tools like Proxima, a digital twin system, to optimize inventory flow.

Capital Deployment and Future Investments

Jim Lee outlined capital deployment priorities: investing in the business (new stores, remodels, supply chain, tech), supporting dividends, and share repurchases. The company has deployed $2.4 billion in CapEx year-to-date and expects $5 billion for the full year, reflecting strategic growth investments. This includes opening 24 new full-size stores and undertaking over 100 remodels this year.

Back-to-School and Back-to-College Performance

Management expressed encouragement with the back-to-school and back-to-college season, noting strong guest response to newness, compelling prices, and enhanced shopping experiences like AI-powered wish lists. Total wish list creations are up over 50%, items added to lists more than doubled, and conversion on key pages is up nearly 20%.

Multi-Year Journey for Home and Apparel

While pleased with overall progress, management acknowledged that performance in home and apparel is 'not where it needs to be' and will require continued work into 2027 and beyond. These are longer lead-time businesses, but where changes have been made (e.g., kids apparel, decorative accessories), positive guest responses are observed, providing confidence for future transformations.

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