Target's Comparable Sales Growth Accelerates on Tariff-Refund Boosted Earnings
Target reported second-quarter earnings per share of $4.11, more than double the prior year, as a $994 million tariff refund and accelerating digital sales pushed the retailer to raise its full-year outlook.
Target (TGT) reported net sales growth of 5.3% to $26.5 billion in the quarter ended August 2026, with comparable sales up 3.8% and comparable traffic rising 3.6%. The discount retailer's two-year net sales compound annual growth rate reached 2.1%, a 30-basis-point acceleration from the first quarter, as the business continued to recover from a comparable-sales decline in the fourth quarter of fiscal 2025.
A one-time item shaped the headline profit figure. Target recognized $994 million in tariff refunds under the International Emergency Economic Powers Act as a reduction to cost of sales, contributing $752 million to net earnings and $1.65 to earnings per share. That pushed gross margin to 33.7% and operating margin to 9.6% in the quarter, up from 5.2% a year earlier. Stripping out the tariff benefit, gross margin still expanded roughly 100 basis points year over year to about 30.0%, continuing an expansion trend that began in the first quarter, when gross margin rose 80 basis points to 29.0%. Earnings per share excluding the refund grew 20% year over year, a smaller but still meaningful gain compared with the reported 100% increase.
Digital sales drove much of the underlying growth. Digital comparable sales rose 8.7% in the quarter, with same-day delivery up 25%, following 8.9% digital comparable growth and 27% same-day delivery growth in the first quarter. Store comparable sales, by contrast, decelerated to 2.7% from 4.7% growth in the first quarter, though both marked a sharp turnaround from the 3.9% store comparable-sales decline in the fourth quarter of fiscal 2025. Non-merchandise sales, which include advertising through Roundel, Target Circle 360 membership fees, and marketplace revenue, grew more than 20% in the quarter, a deceleration from nearly 25% growth in the first quarter and more than 25% growth in the fourth quarter, when membership revenue had more than doubled.
Target raised its full-year guidance across several metrics. The company now expects net sales growth of around 5% for fiscal 2026, one point above its prior guidance and three points above the original outlook issued alongside fourth-quarter results. Full-year earnings-per-share guidance rose to a range of $9.90 to $10.90, which includes the tariff refund; excluding that benefit, the midpoint climbs to $8.25, a 75-cent increase from the prior guide of $7.50 to $8.50. Full-year operating income margin guidance moved to around 6%, or roughly 50 basis points above last year's adjusted margin on an ex-tariff basis, up from a guide of just above 20 basis points issued in the first quarter.
Selling, general, and administrative expense rose to 21.6% of sales from 21.3% a year earlier, which Target attributed to higher compensation costs and capital-project spending that were only partly offset by sales leverage. Capital expenditures climbed 27% year over year to $1.4 billion, reflecting increased spending on store remodels and new locations, while the store count grew to 2,019 locations from 1,982 a year earlier and retail square footage expanded to 253.8 million square feet.
Target did not repurchase any stock during the quarter, part of a broader pullback that has left just $3 million repurchased over the six months ended August 2026, compared with $258 million in the same period a year earlier. The company still has approximately $8.3 billion remaining under its 2021 buyback authorization, a signal that capital allocation is favoring store investment over share repurchases as the retailer works through its recovery.