Target raises annual guidance after second-quarter sales beat consensus
Target lifted its full-year financial guidance after posting stronger-than-expected second-quarter sales and earnings, though shares fell as investors demand proof of sustained recovery in key merchandise categories.
Target reported second-quarter net sales of $26.5 billion, a 5.3% increase from the prior year, and raised its full-year financial outlook. The retailer posted earnings per share of $4.11, significantly ahead of the $2.05 recorded in the year-earlier period.
That bottom-line figure included a $994 million pretax benefit from International Emergency Economic Powers Act tariff refunds, adding $1.65 per share. Even after stripping out this windfall, adjusted earnings per share still expanded 20% year over year, demonstrating underlying operational leverage.
Comparable sales rose 3.8% for the quarter, easily surpassing the 2.4% consensus estimate. Digital comparable sales accelerated by 8.7% with same-day delivery surging more than 25%, while physical store comps grew 2.7%.
All six core merchandise categories achieved year-over-year gains. The Fun 101 hardlines segment drove double-digit growth, and both food and beverage alongside beauty posted high-single-digit increases.
Management now forecasts full-year net sales growth of approximately 5%, up from a previous target of roughly 4%. The company also established a new annual earnings per share guidance range of $9.90 to $10.90.
Excluding the tariff refund benefit, the midpoint of this new earnings range represents a $0.75 increase over the prior midpoint of $8.00. This upward revision follows a 5.6% comparable sales gain in the first quarter that initially prompted the retailer to lift its annual sales target.
Despite the robust results, Target shares dropped roughly 4% in premarket trading. Chief Executive Michael Fiddelke framed the results as an early milestone, noting that "Q2 is an important step forward in the plan we laid out earlier this year to open a new chapter of growth for Target."
He cautioned that "two strong quarters is not the goal" and that "Sustained, durable top and bottom line growth over time is what we're after." Fiddelke added that "We have much more work to do," specifically highlighting apparel and home as categories requiring further improvement.
Non-merchandise revenue streams, including Roundel advertising, Target Circle 360 memberships, and the Target+ marketplace, expanded more than 20% during the period. Capital expenditures reached $1.4 billion, a 27% jump from year-ago levels, primarily funding store remodels and new openings.
Target opened 17 new locations during the quarter, bringing its total store count to 2,019. The company returned $518 million to shareholders through dividends but did not execute any stock repurchases.
