Target Q1 Earnings Call Highlights

Key Points

• Target beat first-quarter expectations with net sales up 6.7% to $25.4 billion and comparable sales up 5.6%, driven mainly by stronger traffic and broad-based gains across stores and digital channels.
• Management said early merchandising changes are gaining traction, especially in focus categories like beauty, food, wellness, and baby/kids, while exclusive launches and partnerships helped boost engagement and sales.
• Target raised its full-year outlook, now expecting sales growth centered around 4% and EPS near the high end of its $7.50 to $8.50 range, but executives stressed that the turnaround is still early and comparisons get tougher later in the year.

Target NYSE: TGT reported stronger-than-expected first-quarter results for fiscal 2026, with executives saying early merchandising and operational changes are beginning to resonate with shoppers, while cautioning that the company remains in the early stages of a broader turnaround effort.

Chief Executive Officer Michael Fiddelke said the quarter provided “early proof points” that Target is on the right path, but emphasized that management is focused on sustainable growth rather than one quarter of improvement. Net sales rose 6.7% to $25.4 billion, while comparable sales increased 5.6%, driven primarily by a 4.4% rise in traffic.

“To be clear, a single good quarter has never been our goal,” Fiddelke said. “Our goal is consistent long-term growth.”

Target said sales growth was broad-based across stores and digital channels, all six core merchandise categories, and multiple guest demographics. Store sales rose nearly 6% from a year earlier, accounting for about two-thirds of the company’s overall net sales growth. First-party digital sales grew nearly 9%, led by more than 27% growth in same-day delivery. Target Plus, the company’s third-party digital marketplace, posted nearly 60% growth in first-quarter gross merchandise value.

Merchandising Changes Drive Early Momentum

Chief Merchandising Officer Cara Sylvester, appearing on her first quarterly earnings call in the role, said Target is moving to sharpen its merchandising strategy around serving “busy families” while maintaining a strong core assortment across categories.

Sylvester said the company is leaning more aggressively into focus areas that represent about half of current sales and are expected to drive roughly three-fourths of future growth. Those areas include beauty, health and wellness, food, baby and kids, women’s style, home, toys and entertainment.

In baby and kids, Sylvester said Target saw a more than 5 percentage point acceleration in baby comparable-sales trends in the back half of the quarter after launching new offerings, including premium services such as a Baby Concierge in select stores. In wellness-related categories, the company added about 1,500 new items and plans to refresh about 40% of the assortment this year. Those changes drove double-digit sales growth in the first quarter, she said.

Food was another area of emphasis. Sylvester said Target introduced 3,000 new food items in the quarter, with sales from those items growing more than 50% compared with the prior assortment. The company plans to reset nearly half of its center-store grocery assortment in the second quarter, its largest transition in that area in more than a decade.

Target also highlighted several limited-time partnerships and exclusive assortments. Sylvester said launches with Parachute, Roller Rabbit and Pokémon exceeded expectations, with strong social engagement and launch-week sales. In the question-and-answer session, executives also cited a K-pop BTS launch as another event that drew lines outside stores.

Operations and Store Investments Remain a Focus

Chief Operating Officer Lisa Roath said Target is working to improve execution across stores and supply chain facilities, with a focus on inventory availability, store labor, training and technology. She said many store experience metrics reached three-year highs in the quarter, including net promoter scores and satisfaction with wait times, product availability, cleanliness and team member interactions.

Roath acknowledged that product findability and in-stock availability remain key friction points, especially in high-frequency categories such as food and during evenings and weekends. She said Target improved top-item availability year over year and is “moving with urgency” to chase additional inventory after stronger-than-expected sales.

The company has provided guest-experience training to more than 300,000 team members and leaders, Roath said. Target is also investing in tools such as MyDevice handhelds and performance dashboards to simplify workflows for store teams.

Target opened seven new stores in the quarter, including its 2,000th location, and remains on track to open more than 30 stores this year. Roath said more than 100 remodel projects are underway, with an enhanced focus on food and other frequency-driving categories.

On the supply chain side, Target opened a receive center in Houston and a food distribution center in Colorado. Roath said the Houston facility is expected to process about 25 million cartons annually. She also announced that Jeff England recently joined the company as Chief Global Supply Chain and Logistics Officer.

Margins Improve on an Adjusted Basis

Chief Financial Officer Jim Lee said Target’s gross margin rate was 29%, about 80 basis points higher than a year earlier. He attributed the improvement to productivity initiatives, supply chain leverage, growth in higher-margin revenue streams such as Roundel and Target Plus, and lower markdown rates, partially offset by higher product costs.

The company’s SG&A expense rate was 21.9%, compared with 19.3% a year ago. Lee noted that last year’s SG&A included the benefit of nearly $600 million in legal settlements. Excluding those settlements, last year’s adjusted SG&A rate was 21.7%.

Operating margin was 4.5%, down from 6.2% on a GAAP basis a year ago but up from last year’s adjusted operating margin of 3.7%. Target reported GAAP and adjusted earnings per share of $1.71, down 24% from prior-year GAAP EPS but up 32% from prior-year adjusted EPS.

Guidance Raised, but Management Stays Cautious

Target now expects full-year net sales growth in a range centered around 4%, about 2 percentage points higher than its prior outlook. The company also said it now expects to end the year near the high end of its prior EPS guidance range of $7.50 to $8.50.

Lee said the updated sales outlook reflects both the first-quarter outperformance and some improvement expected over the rest of the year. However, executives said they are maintaining a cautious stance because Target faced its easiest year-over-year comparison in the first quarter and will face its hardest comparison in the second quarter, including the anniversary of last year’s Nintendo Switch 2 launch.

Lee also said higher tax refunds likely supported consumer spending in the first quarter, a benefit expected to fade over the rest of the year. He added that consumer sentiment has recently declined, even as consumers have remained resilient so far.

Fiddelke said Target prefers to plan conservatively and chase inventory if sales are stronger than expected rather than cancel orders or mark down excess inventory. “We still got three quarters of the year in front of us,” he said.

Capital Spending Plans Unchanged

Target deployed about $1 billion in capital expenditures during the first quarter and continues to expect about $5 billion in CapEx for the full year. Lee said those investments are tied to the growth priorities management outlined earlier in the year.

The company paid $516 million in dividends during the quarter and did not repurchase shares. Lee said Target may have capacity to repurchase shares later in the year if the business continues to perform well, with the pace governed by the company’s outlook and its goal of maintaining middle-A credit ratings.

Fiddelke closed the call by reiterating that Target is still early in its effort to return to sustainable growth. “One quarter does not define success,” he said. “The majority of the work remains in front of us.”

About Target NYSE: TGT

Target Corporation NYSE: TGT is a U.S.-based general merchandise retailer headquartered in Minneapolis, Minnesota. The company operates a network of full-line and small-format stores across the United States alongside a national e-commerce platform and mobile app. Target’s retail assortment spans apparel, home goods, electronics, groceries and household essentials, plus beauty, baby and pet categories. The firm complements national brands with a portfolio of owned and exclusive labels and partnerships that help differentiate its merchandise assortment.

Target traces its roots to the Dayton Company, founded by George Dayton in 1902; the Target discount chain was launched in 1962 and the parent company later adopted the Target Corporation name.

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