Target Raises 2026 Guidance as Tariff Refunds Boost Q2 Profitability

Target Corporation TGT delivered stronger second-quarter sales, traffic and profitability and raised its fiscal 2026 outlook. The results show broader operating momentum, but the unusually large tariff-refund benefit makes the quality of the earnings improvement more important than the headline profit growth.

The central question is how much of the quarter can carry into the back half. Underlying margins improved even without the refund, while Target is still investing heavily in stores, merchandising, technology and value.

Target's Q2 Growth Broadens Across the Business

Second-quarter net sales increased 5.3% year over year to $26.54 billion. Comparable sales rose 3.8%, driven mainly by a 3.6% increase in traffic. Store comparable sales grew 2.7%, while comparable digital sales advanced 8.7%.

The sales gains were broad across the assortment. All six core merchandising categories posted year-over-year growth, with Fun 101 delivering double-digit gains and Food & Beverage and Beauty posting high-single-digit growth. Non-merchandise sales also increased 20.1%, supported by Roundel, Target Plus and Target Circle 360.

TGT's Guidance Raise Signals Better Underlying Trends

Target raised its full-year net sales growth outlook to a range around 5%, one percentage point above its prior view. The company also lifted its adjusted earnings guidance to $9.90-$10.90 per share, including the $1.65-per-share tariff-refund benefit recognized in the second quarter.

The guidance also points to improvement beyond that one-time item. Excluding tariff refunds, Target expects its full-year operating margin rate to run about 50 basis points above last year's adjusted 4.6% rate. That suggests the earnings recovery is not solely dependent on the refund.

Target's Tariff Refund Distorts Reported Profitability

Target recognized a $994 million pretax tariff refund in the second quarter. The benefit added $1.65 per share to earnings and contributed 3.7 percentage points, or 370 basis points, to both the gross margin rate and operating margin rate.

Management said the refund represented the significant majority of International Emergency Economic Powers Act tariff refunds applied for to date, although additional refunds are expected. Excluding the refund, gross margin still improved about 100 basis points and operating margin rose roughly 70 basis points year over year.

TGT's Back-Half Investments Set Up the Next Test

Target plans to introduce Target Beauty Studio in more than 600 stores and continue investments in remodels, merchandising, technology and lower prices. Those initiatives can support traffic and category relevance, but they also keep spending elevated as the company works to turn sales growth into durable operating leverage.

Competition raises the execution bar. Walmart Inc. WMT continues to emphasize everyday low prices and a broad assortment, while Costco Wholesale Corporation COST relies on low prices, high sales volumes and rapid inventory turnover. Target's SG&A rate rose about 30 basis points to 21.6% in the second quarter, and future tariff-related costs remain uncertain.

TGT's Signals Reflect a Balanced Risk Picture

The bottom line is that Target's second-quarter event improved the fundamental picture, but the quality of the gains matters. Broader sales growth and better underlying margins support the outlook, while the large nonrecurring refund and ongoing investment requirements temper the read-through from reported profitability.

Image Source: Zacks Investment Research

TGT currently carries a Zacks Rank #3 (Hold). It also has a VGM Score of A and Momentum Score of A, along with a Value Score of B and Growth Score of B. The favorable Style Scores point to attractive characteristics across several investing approaches, but they are designed to complement the Zacks Rank. The combination supports a balanced near-term view rather than an aggressive conclusion from one strong quarter. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research