Target beats Wall Street estimates, hikes sales outlook as shoppers start to return

On Wednesday, Target announced earnings and revenue that surpassed Wall Street expectations, reporting net sales growth of over 6% year over year as the retailer strives to regain customer patronage in the face of declining sales.

The company's same-store sales experienced a notable increase of 5.6%, marking its first positive growth in this metric in five quarters.

Target highlighted robust performance across all product categories, with overall traffic to both physical stores and digital platforms rising by 4.4% compared to the same fiscal quarter last year. Digital comparable sales rose by 8.9%, a growth spike attributed to the efficiency of same-day delivery services offered through its Target Circle 360 membership program.

"While we acknowledge this early success, we recognize that our work has only just begun," stated CEO Michael Fiddelke during a press briefing. "We are encouraged by our customers' reactions to the changes we are implementing, particularly in areas where we focus on enhancing style, design, and value in the products and shopping experiences we provide."

Importantly, non-merchandise sales surged nearly 25%, driven primarily by significant growth in membership revenue and the Target+ marketplace. Target has been actively working, similar to its competitors such as Walmart and Amazon, to expand these business segments to enhance customer convenience and profit margins.

The retailer noted that sales have risen across all six of its core categories, with particularly impressive performance reported in health and wellness, toys, and baby products. In the first fiscal quarter, Target opened seven new stores and is currently undertaking over 100 remodeling projects.

Q1 Results vs. Expectations

• Earnings per share: $1.71 vs. $1.46 expected
• Revenue: $25.44 billion vs. $24.64 billion expected

Amid the first-quarter results that exceeded projections, Target also increased its full-year revenue forecast. The company now anticipates net sales growth of 4% compared to the previous year, representing a 2-percentage-point uptick from its prior estimate. Furthermore, it expects earnings per share to reach the upper end of its previous guidance range of $7.50 to $8.50, whereas analysts had forecast earnings of $8.14 per share.

"Despite this revised guidance, we are adopting a cautious outlook as we acknowledge the challenges that lie ahead and the ongoing uncertainty in the broader economic landscape," Fiddelke conveyed.

The company’s stock experienced a slight increase during premarket trading.

For the three-month period ending May 2, Target reported a net income of $781 million, equivalent to $1.71 per share, down from $1.04 billion, or $2.27 per share, during the same period last year. Adjusted earnings per share for the previous year stood at $1.30.

Merchandise revenue totaled $24.89 billion, surpassing estimates of $24.18 billion. This revenue figure represents the most significant exceedance since November 2021.

Notably, a key area of strength this quarter was found in the baby and kids segment, which saw an acceleration of over 5 percentage points in sales growth during the latter part of the quarter, alongside product additions in health and wellness that spurred double-digit growth in that area.

Target’s gross margin for the first quarter registered at 29%, exceeding Wall Street's expectations of 28.7%.

The retailer has been actively working to demonstrate to investors its potential to reverse the current sales slump and regain consumer loyalty. The latest earnings report arrives amid a period when Wall Street closely monitors consumer behavior, particularly as rising gas prices and economic uncertainty persist.

Despite the challenges posed by elevated gas prices and a general decline in discretionary spending, executives indicated that consumers continue to show interest in new products that Target is introducing.

"We are observing a resilient consumer base, even amidst a complex array of economic factors affecting the first quarter," Fiddelke noted.

Target is concentrating on refining its merchandising, enhancing guest experiences, and upgrading technology as part of its strategy to achieve sustainable growth.

CFO Jim Lee indicated that Target will escalate its spending in the current year to support its turnaround efforts, with capital expenditures projected at approximately $5 billion for the year, a rise of more than $1 billion from the previous fiscal year. These investments will focus on enhancements to the supply chain and updates to physical stores, among other priorities.

Looking ahead to the current second fiscal quarter, Target has identified key initiatives, including the company's most significant food and beverage transition in over a decade, the rollout of the Target Beauty Studio across more than 600 stores, and a revamp of nearly 75% of its decorative accessories.

"We will not conflate our progress with potential," Fiddelke remarked. "Our aim remains steadfastly focused on achieving consistent growth, not only for 2026 but for many years into the future."

Lee also informed reporters that the company is "navigating the process" of applying for tariff refunds and acknowledged the volatility of the tariff environment. He stated that it is still early to assess how policy changes are impacting profit margins.