Target Beats Q4 Earnings Estimates, Eyes Sales Growth in FY2026

Target Corporation TGT reported fourth-quarter fiscal 2025 results, wherein the top line fell short of the Zacks Consensus Estimate, while the bottom line surpassed the same. The company continued to face pressure in comparable sales, though management highlighted accelerating sales and traffic trends in the last two months of the quarter, along with a healthy sales increase in February, reinforcing confidence in returning to growth in fiscal 2026. Target's resilience was bolstered by significant momentum in its digital and non-merchandise segments, including Target Circle 360 and the Roundel advertising business.

Target’s Quarterly Performance: Key Metrics & Insights

Target reported adjusted earnings of $2.44 per share, which beat the Zacks Consensus Estimate of $2.17 and increased from $2.41 reported in the year-ago period.

The big-box retailer generated net sales of $30,453 million, which came below the Zacks Consensus Estimate of $30,517 million. The metric declined 1.5% year over year from $30,915 million. 

Merchandise sales decreased 1.9% to $29,840 million. However, non-merchandise sales remained a bright spot, with advertising revenues rising to $295 million from $190 million in the prior year. Overall, non-merchandise revenues grew more than 25%, with double-digit Roundel growth, membership revenues more than doubling year over year and marketplace sales climbing more than 30%.

Meanwhile, comparable sales decreased 2.5%, following a 2.7% decline in the preceding quarter. The metric fared better than our estimate of a 2.8% decline. The decrease in comparable sales was driven by a 2.9% decline in the number of transactions, partially offset by a 0.4% rise in average transaction amount. 

Comparable sales reflected a drop of 3.9% in comparable store sales but an increase of 1.9% in comparable digital sales. Digital momentum was led by more than 30% growth in same-day delivery via Target Circle 360.

By category, Food & Beverage, Beauty and Toys posted net sales growth, with improved trends in Essentials and Home compared to the third quarter. Discretionary categories such as Apparel and Home Furnishings remained pressured year over year.

Target Corporation Price, Consensus and EPS Surprise

Target Corporation price-consensus-eps-surprise-chart | Target Corporation Quote

TGT’s Margin Performance

Gross margin expanded 40 basis points to 26.6% from 26.2% last year. The improvement was driven by lower inventory shrink, reduced supply chain and digital fulfillment costs, and growth in advertising and other revenues, partly offset by merchandising pressures, including higher product and import costs. We had expected gross margin to improve by 10 basis points.

SG&A expense rate increased to 19.9% from 19.4% in the year-ago quarter. Excluding non-recurring items, the adjusted SG&A rate was 19.6%. Adjusted operating margin improved to 4.8% from 4.7% last year. We had expected the adjusted operating margin to remain flat year over year.

Target’s Financial Health Snapshot

Target ended the quarter with cash and cash equivalents of $5,488 million compared with $4,762 million at the end of fiscal 2024. Long-term debt and other borrowings stood at $14,326 million, with total shareholders’ investment of $16,165 million.

The company paid dividends of $516 million in the quarter. It did not repurchase shares in the fourth quarter and has approximately $8.3 billion remaining under its August 2021 authorization.

For the trailing 12 months, after-tax return on invested capital was 13.8%, down from 15.4% in the prior-year period.

A Sneak Peek Into TGT’s FY26 Outlook

This Zacks Rank #3 (Hold) company provided an optimistic outlook for fiscal 2026, expecting to return to net sales growth in every quarter of the year. Target projects full-year net sales growth in a range of around 2%, driven by a small increase in comparable sales and more than one percentage point contributions from new stores and non-merchandise sales.

Fiscal 2026 GAAP and adjusted earnings per share are expected to be in the range of $7.50 to $8.50 compared with $7.57 reported in fiscal 2025. For the first quarter of fiscal 2026, the company anticipates GAAP and adjusted earnings per share to be flat to up slightly from earnings of $1.30 reported last year. Target also expects its fiscal 2026 operating margin rate to expand approximately 20 basis points from 4.6% adjusted operating margin rate seen in 2025.

Management reiterated its focus on strengthening merchandising authority, elevating the shopping experience, advancing technology capabilities, and investing in high-growth profit streams such as advertising, marketplace and membership.

Shares of Target have advanced 23.1% over the past three months compared with the industry’s 12% rise.

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

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