TLDR
- Target posted Q2 net sales of $26.5B, up 5.3% year over year, beating estimates of $25.5B
- EPS doubled to $4.11, crushing the $2.32 estimate, boosted by a $1.65 tariff refund benefit
- Target received a $994M pre-tax tariff refund following a Supreme Court ruling against Trump’s import tariffs
- Comparable sales rose 3.8%, with digital comparable sales up 8.7%
- Full-year EPS guidance raised to the high end of $9.90-$10.90, up from the prior $7.50-$8.50 range
Target (TGT) stock rose 4.28% to $159.00 on Wednesday after the retailer posted a strong second quarter earnings beat and revealed it had received nearly $1 billion in government tariff refunds.
Net sales came in at $26.5 billion, up 5.3% year over year and well ahead of the $25.5 billion estimate. Diluted EPS hit $4.11, double last year’s figure and nearly twice the $2.32 analyst estimate.
The company received a $994 million pre-tax tariff reimbursement after a Supreme Court ruling declared a wave of President Trump’s import tariffs unlawful. That refund pushed Q2 operating income to $2.6 billion, up from $1.3 billion a year ago.
EPS included a $1.65 benefit from those refunds. Gross profit margin came in at 33.7%, up from 29% a year ago and well above the 28.5% estimate. The quarter also included a 370 basis point lift from tariff refunds.
Comparable sales rose 3.8% against an estimate of 2.43%, reversing last year’s -1.9% comp. Digital comparable sales grew 8.7%.
Sales increased across all merchandise departments, with beauty and food leading the way. Store traffic rose, with transactions up 3.6% and average transaction value up 0.2%.
Turnaround Gaining Ground
CEO Michael Fiddelke said the results reflect a broad effort to reset what Target sells and how it sells it. The company has added 3,000 beauty products across 60 new brands, reset 75% of home decorative accessories, and launched a back-to-school range that is more than 50% new.
Target has also cut prices on more than 10,000 items over the past year, mostly food products, to compete more directly with Walmart and Kroger. Fiddelke said more price cuts are coming.
“We’re encouraged,” Fiddelke said. “We laid out a plan for the year that had a lot of change in it, more change to what we were selling and how we were going to sell it than in the last decade.”
Jefferies analyst Corey Tarlowe called it one of the broadest assortment refreshes in years and said improved traffic trends are starting to show up in the numbers. He believes the market may be underestimating how long those traffic gains can last.
Raised Guidance
Target raised its full-year sales growth outlook to approximately 5%, up from 4% previously.
Full-year EPS is now expected at the high end of the $9.90 to $10.90 range. That compares to prior guidance at the high end of $7.50 to $8.50, and analyst estimates of $8.48.
Excluding tariff refunds, the midpoint of the new guidance range reflects a $0.75 increase over prior guidance.
Capital expenditure in Q2 reached $1.4 billion, 27% higher than a year ago, driven by store remodels and new store openings.
Target has reduced its reliance on China for sourcing, with 30% of its store-label goods now coming from the country, down from 60% in 2017.
CFO Jim Lee said the company will continue to invest in price, though he did not give further details on how the tariff refund money will be used.
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