Target (TGT.US) has demonstrated that its turnaround strategy is gaining traction, posting three consecutive quarters of strong performance following a challenging three-year revenue slump. On August 19, before the market opened, the big-box retailer—operating more than 2,000 stores—reported fiscal 2026 second-quarter results for the period ended August 1, beating Wall Street expectations across all key metrics and raising its full-year guidance once again.
Net sales rose 5.3% year-over-year to $26.54 billion, surpassing the $26.11 billion consensus estimate. Adjusted earnings per share came in at $4.11, more than doubling from $2.05 in the prior-year period and far exceeding the $2.33 analysts had projected. Comparable sales grew 3.8%, well ahead of the 2.4% expected, driven primarily by a 3.6% increase in foot traffic. Store comparable sales advanced 2.7%, while digital comparable sales surged 8.7%, with same-day delivery services growing more than 25%. All six core merchandise categories posted year-over-year gains, with Fun 101 (hardlines) achieving double-digit growth and food & beverage and beauty both delivering high-single-digit increases.
Where the strategy stands
CEO Michael Fiddelke, who took the helm in February, has now delivered two consecutive quarters of positive comparable sales growth. During the quarter, the company completed its largest in-store transformation in a decade—reconfiguring grocery layouts in nearly half of its central stores, overhauling the Fun 101 area, and replacing nearly three-quarters of its home décor accessories assortment. Management has identified seven priority growth areas—beauty, health & wellness, food, baby, women's fashion, home, and culture-driven categories like toys—which currently contribute approximately 50% of sales.
Category performance was notably strong in several areas. Adjusted snack sales grew more than 15% year-over-year; within Fun 101, Lego sales climbed over 30% and plush toys rose more than 20%, with trendy items priced between $5 and $20 proving especially popular. In beauty, the company plans to launch Beauty Studio in more than 600 stores next month. However, apparel and home remain the weakest segments—the CEO acknowledged both categories are "barely achieving positive growth" and represent the most significant areas for improvement. The home category operates on longer cycles, making transformation a "multi-year process," while children's basics in apparel have already achieved double-digit growth, though broader recovery will take time. The company plans major changes to kitchen and dining categories in 2027.
Operational execution and long-term investments
COO Lisa Roath emphasized that consistency is the core operational theme during this period of significant store-level change. Inventory reliability metrics have reached "multi-year highs," with core merchandise achieving the best in-stock rates in recent years. Delivery speed has improved markedly, with same-day and next-day order volumes up nearly 30% year-over-year. The company has introduced Proxima, a digital twin tool that optimizes inventory flow, while balancing store renovations with customer satisfaction.
On capacity, Target opened 17 new stores in the quarter (24 year-to-date) and completed full remodels at over 100 locations, targeting approximately 130 for the full year. Since stores fulfill more than 95% of sales volume, these investments enhance both the physical experience and delivery efficiency. On the technology front, the company has appointed its first Chief AI Officer, and digital traffic from external AI platforms is growing at more than 3.5 times the industry average. Back-to-school wish list creation has increased over 50% with conversion up nearly 20%. Full-year capital expenditure is expected to be approximately $5 billion.
The CEO concluded that current results represent only the "starting phase," with substantial work ahead through 2027 and beyond. However, two consecutive quarters of growth momentum and improving customer satisfaction are laying the foundation for a sustainable recovery at the 2,000-store retail giant.
Executive commentary highlights
During the earnings call, executives provided deeper insight into the company's strategic direction. Fiddelke noted that guest traffic growth of 3.6% year-over-year, with the two-year trend accelerating slightly from Q1, validates that customers are responding positively to the changes. He emphasized that while the company is still in the early stages, the initial results are building confidence that ongoing investments—all aligned with the strategy—will support sustained revenue and profit growth.
Cara Sylvester, EVP and Chief Merchandising Officer, detailed the seven priority areas that are receiving disproportionate investment. She highlighted that growth is primarily coming from categories undergoing significant transformation, proving the company is investing in the right opportunities. The food transformation, the largest in over a decade, has been particularly well-received, with adjusted snack sales up more than 15% and strong momentum in protein bars, meat sticks, and better-for-you snacks. The Fun 101 overhaul, including expanded Lego assortments and plush toy walls, has driven double-digit growth, with Lego sales up over 30%.
Lisa Roath, EVP and COO, stressed that consistency is the operational watchword during this period of accelerated change. She highlighted that inventory reliability has reached multi-year highs even amid massive store-level transformations, and that delivery speed has improved significantly. The investment in Proxima, a digital twin of the middle-mile inventory positioning system, is enabling the team to test and iterate inventory flow plans before implementation.
CFO Jim Lee reported that second-quarter net sales of $26.5 billion grew 5.3%, with comparable sales up 3.8% driven by 3.6% traffic growth. The second-quarter gross margin of 33.7% included a 3.7-percentage-point benefit from IEEPA tariff refunds; excluding that impact, gross margin improved approximately one percentage point. SG&A expenses grew 7% year-over-year, reflecting higher compensation costs including additional hours and training for field teams. The company raised its full-year net sales growth outlook to approximately 5% and increased EPS guidance from $7.50-$8.50 to $9.90-$10.90, which includes the $1.65 per share tariff refund benefit recognized in Q2.
Key areas of focus ahead
Management acknowledged that apparel and home remain the primary areas needing improvement. In apparel, children's basics have achieved double-digit growth, and the company is seeing positive response to its focus on simplifying the shopping experience. The home category is progressing through a multi-year transformation, with significant changes to decor accessories already showing results. Looking ahead, the company plans major updates to kitchen and dining categories in 2027, and expects continued evolution across all seven priority areas.
The back-to-school season has gotten off to a strong start, with wish list creation up more than 50% year-over-year and items added to lists more than doubling. The exclusive LoveShackFancy collaboration became Target's largest design partnership ever, and 95% of school supplies are priced at or below last year's levels. The company remains focused on executing consistently through the remainder of the season and beyond.