New CEO’s “turnaround strategy” continues to deliver results! Target (TGT.US) Q2 revenue beats expectations, tariff rebates boost profits, and full-year guidance raised again

According to Zhitong Finance APP, after three years of declining revenue and a difficult period of adjustment, Target (TGT.US) is now proving to the market that its turnaround strategy is working, with three consecutive quarters of strong performance. Before the U.S. market opened on August 19, this major retailer—boasting more than 2,000 stores—released its fiscal 2026 Q2 financial results for the period ending August 1. All key metrics beat Wall Street expectations, and the company once again raised its full-year guidance.

Core Financial Data: Revenue and Profits Beat Expectations, Full-Year Guidance Raised

Net sales grew by 5.3% year-on-year to $26.54 billion, beating market expectations of $26.11 billion. Adjusted earnings per share reached $4.11, doubling from $2.05 in the same period last year and far surpassing analyst expectations of $2.33.

Comparable store sales grew by 3.8%, well above Wall Street’s expected 2.4%, driven largely by a 3.6% increase in traffic. Among these, brick-and-mortar same-store sales rose by 2.7%, while digital channel same-store sales surged by 8.7%. Same-day delivery services grew over 25%. All six core merchandise categories saw year-on-year increases, with Fun 101 (hardlines) achieving double-digit growth, and food, beverage, and beauty all reaching high single-digit growth rates.

Non-merchandise income—including Roundel ad revenue, Target Circle 360 membership fees, and Target+ third-party seller platform income—grew by over 20% year-on-year.

Looking at the two-year compound annual growth rate, Q2 net sales CAGR stood at 2.1%, accelerating by 30 basis points from the previous quarter.

Tariff Refund: $994 Million “Windfall Profit”

However, behind this “textbook-level” beat lies a structural fact that cannot be ignored—a nearly $1 billion tariff refund, which was the biggest single driver of this quarter’s profit growth.

The most eye-catching number in this quarter’s report was a $994 million pre-tax tariff refund gain.

This refund stemmed from tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA) and was returned to the company. The refund was accounted for in gross margin and operating profit, directly contributing $752 million to net profit, boosting EPS by about $1.65, and lifting operating margin by 3.7 percentage points to 9.6%. Even excluding this one-off gain, adjusted EPS was still up about 20% year-on-year.

However, the $994 million tariff refund is a one-time windfall, not a sustainable profit improvement from improved operational efficiency. When this refund does not recur next quarter, EPS will face significant year-on-year pressure.

Full-Year Guidance Significantly Raised: EPS Midpoint Raised to $10.40

Based on its better-than-expected first-half performance, Target has again raised fiscal 2026 full-year guidance: it now expects full-year net sales growth of about 5%, and has raised adjusted EPS guidance to a range of $9.90–10.90. The new midpoint of $10.40 is well above previous analyst expectations of $8.47. Stripping out Q2’s $1.65 EPS boost from the tariff refund, the new guidance midpoint stands at $8.75, still $0.75 higher than the previous $8.00 midpoint.

CEO Fiddelke’s “Turnaround” Strategy: Two Quarters of Growth, Apparel & Home Still Lagging

This marks the second consecutive quarter of comparable sales growth for CEO Michael Fiddelke since officially taking over in February. The previous quarter’s 5.6% same-store growth ended a five-quarter streak of declines.

In the earnings statement, Fiddelke said: “The second quarter’s results were built on encouraging momentum in the first, making us even more confident that our strategy is resonating with guests.” On a call with reporters, he emphasized: “Two quarters of strong results are not the goal. We are pursuing sustainable, lasting growth in sales and profits.”

Since announcing a $6 billion turnaround plan in March, Fiddelke has driven a series of reforms: price cuts on more than 10,000 products; the largest adjustment to packaged food assortments in over a decade, resulting in double-digit growth in snack sales; and increased display space for fresh produce, snacks, and bakery goods.

However, not all categories have recovered. Apparel and home are still lagging other business lines, achieving only “modest positive growth.” Chief Merchandising Officer Cara Sylvester said the company’s vision is to shift its food business from “basket fillers” to being a primary reason for guests to visit Target.

Business Highlights: Major Grocery Overhaul, Snack Sales Up 15%

Grocery has become the core battlefield of Target's transformation. Nearly half the mid-aisle shelves were re-merchandised, expanding snack and new product display space; Sylvester called this the largest adjustment in more than a decade for the dry grocery section. After the adjustment, snack sales rose by 15% year-on-year. Sylvester stated the company’s goal is “to transform food from something guests buy on the side or as a filler, to a reason they come to Target.”

The beauty business also performed well. Target added 3,000 beauty products from 60 new brands, and plans to expand its beauty studios to more stores in Q3.

Back-to-school season was a catalyst for growth. According to Placer.ai data, despite economic uncertainty and geopolitical tensions, Target’s traffic trends in May, June, and July remained strong; the acceleration at the end of July was likely driven by a week-long back-to-school promotion. Fiddelke said he was “encouraged” by the start of the back-to-school season and revealed that more than 50% of back-to-school merchandise is new.

Risks & Challenges: Apparel and Home Still Weak Spots

Despite the overall strong results, Target still has clear weaknesses to address. On the earnings call, Fiddelke admitted apparel and home categories saw “only modestly positive growth”—the categories most in need of improvement.

On apparel, Sylvester said the company needs to better capture trends, offer sharper, more precise assortments, and strengthen buying power to keep up with changing consumer tastes. She described the home category turnaround as “a multi-year journey”; currently, 75% of home décor accessory assortments have been refreshed.

On pricing, Target lowered prices on more than 10,000 products over the past year. Fiddelke said: “We’re not done—you can expect us to continue to invest wisely in value pricing.”

Compared to Competitors, Target Has Limited Margin for Error

Retailers are striving to cope with a mixed U.S. economy. Consumer confidence in August fell for the first time in three months due to inflation concerns, while the labor market showed weakness and wage growth slowed.

Because consumers are prioritizing food and essentials over home and apparel—the latter historically Target’s strong suits—company performance was impacted. Political controversies, especially after last year’s diversity policy adjustments, also affected demand. Meanwhile, competitors Walmart (WMT.US) and Costco (COST.US) have been gaining market share by emphasizing value and expanding their product offerings.

Walmart, Costco, and Kroger are ramping up investment and cutting grocery prices to win over consumers fatigued by persistent cost increases.

Analyst Brett Husslein from Morningstar said Wednesday’s results are a critical indicator for observing whether Target can maintain consistent execution on price, assortment, and store experience—as it did in the quarter ended May 2.

Husslein pointed out that Walmart, with its low-price strategy and high-margin ad business, is better positioned to withstand macroeconomic headwinds or managerial missteps. By contrast, Target’s margins are more reliant on retail sales, making it potentially more vulnerable to any loss of customers—no matter whether those losses are driven by societal, macroeconomic, or commercial factors.

He said, in an environment where consumers are tightening their belts, this underscores the importance of flawless execution—especially on pricing, which must be low enough to attract shoppers without eroding margins.

“If they’re not extremely vigilant and effective on all fronts, they risk losing share of the consumer wallet,” Husslein said.