Target Corp. (TGT) hiked its sales outlook for the fiscal year after reporting same-store sales in the first quarter grew 5.6  percent, the retailer’s first increase in the key metric in five quarters. Top-line strength was said to be broad-based across merchandise categories, sales channels and across the quarter.  Earnings also came in well ahead of analyst expectations and the discounter now sees full-year EPS at the high end of its prior range.

Net sales of $25.4 billion in the first quarter were said to be 6.7 percent higher year-over-year (y/y), reflecting a 6.4 percent y/y increase in merchandise sales and a 24.6 percent y/y increase in non-merchandise sales, reflecting strong growth in Roundel ad revenue, Target Circle 360 membership revenue, and the Target+ marketplace. Net sales in all six core merchandising categories were said to be higher year-over-year. The top-line number was said to be “well above expectations.”

Comparable sales grew 5.6 percent y/y in the first quarter:

  • Comparable store sales increased 4.7 percent y/y;
  • Comparable traffic grew 4.4 percent compared with Q1 2025; and 
  • Digital comparable sales grew 8.9 percent y/y, led by more than 27 percent y/y growth in same-day delivery powered by Target Circle 360.

Profitability & Expenses
Consolidated first quarter gross margin rate was 29.0 percent of revenue, an 80 basis-point improvement from 28.2 percent in 2025, reflecting improved productivity in supply chain facilities, growth in advertising and other non-merchandise revenues, and lower markdown rates, partially offset by higher product costs.

First quarter SG&A expense rate and Adjusted SG&A expense rate was 21.9 percent of revenue, compared to 2025 GAAP SG&A expense rate of 19.3 percent of revenue and Adjusted SG&A expense rate of 21.7 percent of revenue. This increase reflects the impact of higher compensation costs, including additional hours and training for field teams along with higher incentive compensation, planned spending related to capital projects, and higher marketing expense, partially offset by the leverage benefit of strong top-line growth.

First quarter operating income and Adjusted operating income were $1.1 billion, a 22.9 percent y/y decrease from prior-year GAAP operating income and a 29.1 percent increase from prior-year Adjusted operating income.

First quarter operating income margin rate and Adjusted operating income margin rate were 4.5 percent of revenue in 2026, compared with the prior-year GAAP operating income margin rate of 6.2 percent and an Adjusted operating income rate of 3.7 percent. 

TGT reported first quarter GAAP and Adjusted earnings per share (EPS) of $1.71, compared with prior-year GAAP EPS of $2.27 – which included non-recurring legal settlement gains – and Adjusted EPS of $1.30.  

Adjusted EPS of $1.71 topped analysts’ consensus target of $1.44. Revenues of $25.44 billion exceeded the consensus estimate of  $24.66 billion.

“First quarter financial results were stronger than expected, providing encouraging early signs that our clarified strategy is resonating with our guests and driving broad-based growth across our business,” said Michael Fiddelke, Chief Executive Officer of Target. “While we’re pleased with our Q1 performance, our focus remains on building consistent, long-term growth, and we recognize there is much more work in front of us. As we look ahead, we’re focused on staying disciplined and flexible in an uncertain operating environment and continuing to invest boldly in our team, capabilities, and an elevated guest experience to unlock our full potential over time.”

Guidance
The company shared the following updated expectations for 2026:

  • Net sales growth in a range ~4 percent compared with 2025, which is two percentage points higher than the previously issued range. The company continues to expect to grow net sales in every quarter of the year;
  • Full-year 2026 operating income margin rate more than 20 basis points higher than the 4.6 percent adjusted operating income margin rate in 2025; and
  • GAAP and Adjusted EPS near the high end of the previously issued guidance range of $7.50 to $8.50 per share.

Interest Expense and Taxes
The company’s first quarter 2026 net interest expense was $117 million, in line with $116 million last year.

First quarter 2026 effective income tax rate was 24.4 percent, compared with the prior-year rate of 25.0 percent, reflecting lower discrete tax expenses in the current year.

Capital Deployment and Return on Invested Capital
First quarter capital expenditures of $1.0 billion were 31 percent higher than last year’s Q1 period, driven primarily by increased investments in new stores and store remodels.

The company said it paid dividends of $516 million in the first quarter, compared with $510 million last year, reflecting a 1.8 percent increase in the dividend per share, partially offset by the impact of a lower share count.

TGT said it did not repurchase any stock in the first quarter. As of the end of the quarter, the company had approximately $8.3 billion of remaining capacity under the repurchase program approved by Target’s Board of Directors in August 2021.

For the trailing twelve months through first quarter 2026, after-tax return on invested capital (ROIC) was 12.4 percent, compared with 15.1 percent for the trailing twelve months through first quarter 2025.

Image courtesy Target Corp.