Is Target's Digital Ecosystem Becoming a Major Profit Engine?

Target Corporation TGT delivered renewed strength in its digital channel during the second quarter of fiscal 2025, with comparable digital sales rising 4.3% year over year. The gains were led by more than 25% growth in same-day delivery powered by Target Circle 360, underscoring the continued importance of convenience services.

At the core of this performance is the company’s “stores-as-hubs” model, which fulfills the vast majority of online orders through its nationwide store base. This capital-light approach allows Target to lower costs, speed up delivery and operate a digital business that now exceeds $20 billion in annual sales.

Beyond transactions, Target is growing higher-margin digital streams. Roundel, Target Plus and membership all delivered double-digit growth in the quarter, highlighting how digital is evolving into a contributor to both revenues and profitability.

Technology investments are reinforcing this progress. Target rolled out more than 10,000 AI licenses in the second quarter to improve forecasting, automate manual work and strengthen replenishment. These tools helped deliver the best on-shelf availability in years and supported more reliable digital fulfillment. In addition, the company is piloting differentiated store roles in markets such as Chicago, with some locations optimized for digital fulfillment and others focused on the in-store experience.

Merchandise newness also supported demand. Within electronics, Target saw an exceptional response to the launch of Nintendo Switch 2, where it ranked among the top retailers in sales and market share. With digital growth gaining momentum, the company heads into the holiday season with its omnichannel model positioned as a key driver of both scale and profitability.

WMT & BBY Drive Digital Ecosystems as TGT Leans Into AI

Walmart Inc. WMT is accelerating its digital business through strong e-commerce growth, AI-driven innovation and faster fulfillment. Global e-commerce sales rose 25% year over year, with Walmart U.S. growing 26% and nearly one-third of store deliveries arriving in under three hours. AI tools like “Sparky” enhance personalization, while marketplace, advertising and membership income expand Walmart’s digital ecosystem.

Best Buy Co., Inc. BBY is expanding its digital ecosystem through the launch of its new online marketplace, tripling assortments in categories like mobile accessories and gaming. The platform leverages AI-powered search to improve product discovery and enhance personalization. With seamless store integration, seller support and growing ad capabilities, Best Buy positions itself as a stronger digital-first retail leader.

Target’s Price Performance, Valuation & Estimates

TGT stock has risen 2.9% over the past three months against the industry’s decline of 3.7%.

Target’s forward 12-month price-to-earnings ratio of 12.19 reflects a lower valuation compared with the industry’s average of 31.77X. TGT carries a Value Score of A.

The Zacks Consensus Estimate for TGT’s fiscal 2025 earnings per share implies a year-over-year decline of 15.5%, while the same for fiscal 2026 indicates growth of 8.8%. Earnings estimates for fiscal 2025 and 2026 have been southbound 6 cents and unchanged, respectively, in the past 30 days.

Target currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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