On August 19, Target Corp. (NYSE:TGT) reported second-quarter earnings that looked, on the surface, like a blowout, with adjusted earnings per share doubling to $4.11 from a year ago. Dig one layer deeper, and the picture gets more complicated. A one-time tariff refund did a lot of the heavy lifting, but underneath it, traffic grew, digital sales accelerated, and management raised its outlook for the rest of the year. The quarter offers a clearer read on whether Target’s turnaround plan is actually working.
Guests Are Coming Back
Target’s comparable sales grew 3.8% in the quarter, and unlike retailers leaning on higher prices to grow, this came from actual foot traffic, which rose 3.6% while the average ticket stayed flat. Digital sales moved even faster, climbing 8.7%, with same-day delivery growing more than 25% as the company leans harder into fast fulfillment. Net sales reached $26.5 billion, a 5.3% increase from a year ago.
The company also completed its largest wave of store resets in more than a decade during the quarter, touching grocery, electronics, toys, and home. Early signs are encouraging. Snack sales are running more than 15% ahead of last year following the grocery reset, and LEGO sales are up more than 30% after the toy aisle overhaul. The beauty category grew in the high single digits ahead of a launch of Target Beauty Studio in more than 600 stores.
Beyond the core retail business, Target’s higher-margin operations are scaling fast. Its Roundel ad business grew over 20%, Target Circle 360 membership revenue jumped more than 40%, and the Target+ marketplace grew sales volume by more than 40%. Buoyed by the quarter, management raised full-year sales guidance to around 5% growth and lifted its earnings per share outlook to a range of $9.90 to $10.90.
Old Problems Haven’t Gone Away
Much of the quarter’s headline strength traces back to an accounting one-off rather than the underlying business. Target booked a $994 million pretax benefit from tariff refunds, which accounted for 3.7 of the 4.7 percentage point jump in gross margin and $1.65 of the $4.11 in adjusted earnings per share. Strip that out and adjusted earnings per share still grew, but by roughly 20% rather than 100%, and the updated guidance range implies only a $0.75 increase at the midpoint once the refund is excluded.
Costs are climbing too. Selling, general, and administrative expenses rose to 21.6% of sales from 21.3%, as Target pays field teams more and spends more on store remodels and technology projects. Management also acknowledged that home and apparel sales are still lagging, with Chief Merchandising Officer Cara Sylvester saying that work “will continue into 2027 and beyond.” Management separately noted there is a healthy tension between the urgency of change and the ability to execute it well across 2,000 stores at once. Chief Operating Officer Lisa Roath added that the transformation work has added disruption to the store experience even as new formats prepare to launch, a trade-off that will keep playing out.
What The Numbers Say
Hedge fund ownership of Target slipped from 68 funds in the prior quarter to 63, a modest pullback even as the fundamentals firmed up. Short interest sits at just 3.03% of the float, pointing to limited organized skepticism among short sellers. Shares trade at a forward price-to-earnings ratio of 16.98 as of August 26, a discount to the broader market that suggests investors are not yet pricing in a full turnaround. That gap, fewer funds buying in even as the multiple stays modest, captures the market’s wait-and-see approach to Target’s story.
Where This Leaves Investors
Target’s second quarter shows a business finding its footing, with traffic returning, digital sales accelerating, and its media and membership businesses turning into real profit drivers. But a large share of the quarter’s earnings strength traces back to a one-time tariff refund rather than the core operation, and Target’s own executives admit that home, apparel, and store-level execution still need years of work. Momentum in traffic and in newer revenue streams would need to keep compounding once that tariff cushion disappears for the bull case to hold.
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