Key takeaways:
- Target posted net sales of $26.5 billion in Q2 2026, up 5.3% year over year, with comparable sales growing 3.8% driven by a 3.6% traffic increase.
- A sweeping reset of nearly half of center-store grocery, a complete Fun 101 reinvention and a record-breaking LoveShackFancy collaboration headlined the quarter’s merchandising moves.
- The company raised its full-year net sales guidance to around 5% growth and updated EPS guidance to a range of $9.90 to $10.90, including $1.65 in second-quarter tariff refund benefits.
Target ‘s CEO Michael Fiddelke, Chief Merchandising Officer Cara Sylvester and Chief Operating Officer Lisa Roath detailed one of the most aggressive in-store transformation agendas in the retailer’s recent history on the company’s Q2 earnings call on Wednesday. The results were largely encouraging, though executives said there’s still a lot of work to be done.
In the quarter which ended Aug. 1, GAAP and adjusted earnings per share were $4.11, compared with $2.05 in the prior year, a 100% increase. Of that figure, $1.65 came from $994 million in IEEPA tariff refunds. Excluding that benefit, EPS grew about 20%. Net sales rose 5.3% to $26.5 billion.
Traffic climbed 3.6%, and digital comparable sales grew 8.7%, led by more than 25% growth in same-day delivery. Minneapolis-based Target also opened 17 new stores in the quarter, bringing its year-to-date total to 24.
“Second quarter results build on the encouraging momentum we saw in the first quarter, giving us increasing confidence that our strategy is resonating with our guests and strengthening our leadership position in style, design and value,” Fiddelke said on the call.
Grocery Gets Its Biggest Reset in More Than a Decade
Sylvester detailed how Target has overhauled its grocery department.
“We recently completed our largest food transition in more than a decade, changing the presentation of nearly half of our center-store grocery assortment, adding new and unique offerings, and reimagining end caps and in-aisle presentation to make discovery easier,” Sylvester said.
The company expanded fresh produce, carved out new focal points for seasonal items and added space for fast-growing categories like snacks, global foods and functional coffee.
Post-transition snack sales ran more than 15% ahead of last year, with protein bars, meat sticks and better-for-you snacking options leading the way, Sylvester said. Food and beverage as a category posted high single-digit growth overall in Q2, generating $5.99 billion in net sales, up from $5.59 billion a year earlier.
The Fun 101 Reinvention
Target’s hardlines category, internally branded Fun 101, posted double-digit growth in the quarter, generating $3.89 billion in net sales versus $3.52 billion a year ago.
“It’s a great example of the intentional choices we’re making to differentiate our assortment and experience,” Sylvester said. “That meant evolving legacy presentations within TVs and bikes, and dedicating more of that space to categories like wearable tech, Lego, trading cards and collectibles. These are the kinds of choices we need to make more consistently, staying close to the guest, moving at the speed of culture, and being disciplined about where we invest our space.”
Lego sales were up more than 30% year over year. Plush was up more than 20%. Sales of Target’s own Heyday $10 headphones ran more than 35% ahead of last year. A $5 Barbie price point added to a broader push on value at $5, $10, $15 and $20 price points.
The Fun 101 reinvention also included a new fandom destination for pop culture items and exclusive collaborations. A second Pokémon drop in Q2 built on the first-quarter collaboration, which the company says introduced thousands of new guests to Target.
Baby, Kids and Back-to-School
Target’s back-to-school push leaned on two levers: price and partnerships. The company said 95% of its school supplies assortment is priced at or below last year’s levels, part of a broader effort that has reduced prices on more than 10,000 items over the past year.
On the style side, the company’s LoveShackFancy limited-time collaboration, which spanned multiple categories and kept most items priced under $25, was massively successful.
“This offering ended up being the largest limited-time collaboration in Target’s history, and I think it’s a great example of what only Target can do,” Sylvester said. “Style, culture, multi-category merchandising, incredible value: that combination is distinctly Target and very difficult to replicate.”
In kids’ apparel, Target relaid its floor pad and focused on basics and the tween Art Class brand, which ran 50% ahead of last year. Wish list creation across back-to-school and back-to-college pages was up more than 50% versus the prior year, with items added to those lists more than doubling and conversion on key back-to-school pages up nearly 20%.
AI-powered teacher and college wish list recommendations contributed to those digital gains, according to the company.
Apparel, Home and Target Beauty Studio
The next major activation is Target Beauty Studio, which will debut in more than 600 stores beginning in September. The rollout includes dedicated beauty advisors and an overhauled in-store experience, a step up from the company’s beauty business, which posted high single-digit growth in Q2.
There’s still a lot of work to be done in apparel and home furnishings, which were essentially flat in Q2. Apparel net sales came in at $4.09 billion versus $4.09 billion a year ago. Home furnishings and decor generated $3.67 billion, compared with $3.66 billion in Q2 2025.
“Flattish growth in apparel and home isn’t what we strive for over time, and the earnings power potential of those two high-margin categories returning to a place of more sustained growth is something we look forward to.” Fiddelke said.
The company attributed some of the drag to longer product lead times, which slow the pace of change. Sylvester said changes in decorative accessories are already outperforming in stores where they’ve been completed, and that major changes in bedding, kids’ home and bath are coming in Q3, with kitchen and dining updates planned for 2027.
Apparel improvements in the women’s category are also expected to show up as the fall season progresses.
Technology: AI and Proxima
Target highlighted two technology investments as central to its operating improvement. The first is its use of AI across digital commerce and guest personalization. Digital traffic sourced from external AI platforms like OpenAI and Google is growing more than 3.5 times the industry rate compared with a year ago, according to the company. Target also recently named a new Chief AI Officer, Chandhu Nair, to lead those efforts.
The second is Proxima, an internal digital twin of Target’s middle-mile inventory positioning system. The tool allows the operations team to simulate inventory flow decisions before executing them, reducing the risk of downstream supply chain disruptions. Roath credited Proxima with supporting the improved in-stock levels the company reported in Q2, which it described as reaching multi-year highs.
“Proxima helps us more efficiently evaluate inventory processes between our buildings and stores, giving our teams a way to quickly understand potential downstream impacts, learn faster, and make inventory decisions with greater confidence,” Roath said.
Target also reported fulfilling nearly 30% more same-day and next-day units in Q2 compared with the prior year.
Tariff Refunds and What They Mean for the Outlook
Target received $994 million in pretax IEEPA tariff refunds during Q2, which reduced cost of sales and boosted gross margin by 3.7 percentage points. Without that benefit, gross margin would have expanded about 100 basis points over last year’s already elevated mark-down-heavy comparable.
CFO Jim Lee said the Q2 refunds represent the “significant majority” of IEEPA refunds the company has applied for to date, though more are expected. Full-year guidance excludes any potential future refunds.
On the updated outlook, Target raised its full-year net sales growth guidance to around 5%, up from the prior range of around 4%. Full-year EPS guidance was revised to $9.90 to $10.90, which includes the $1.65 Q2 tariff benefit. Excluding that, the midpoint of guidance represents a $0.75 increase over the prior range of $7.50 to $8.50.
Home and apparel updates will continue to roll out through the back half of the year and into 2027. Capital expenditures are tracking toward approximately $5 billion for the full year, up nearly 30% from 2025, reflecting stepped-up investment in new stores, remodels, supply chain and technology. Around 130 full-store remodels are planned for 2026.
The company’s trailing 12-month return on invested capital was 15.4%, compared with 14.3% a year ago, though that figure includes the tariff refund benefit.
