Target Q2 EPS Doubles to $4.11 as $994 Million Tariff Refund Boosts Results

Target’s second-quarter earnings per share doubled from a year earlier, but the biggest driver of the jump was a tariff refund that sharply lifted reported profit. The retailer posted diluted EPS of $4.11 for the quarter ended August 1, 2026, up from $2.05 a year earlier. Target said $994 million of pretax tariff refunds contributed $752 million to net earnings and added $1.65 per share to both GAAP and adjusted EPS.

The underlying quarter was stronger as well, even after separating the refund from the headline result. Target said EPS increased 20% from a year earlier excluding the tariff benefit. Net sales rose 5.3% to $26.54 billion, and comparable sales increased 3.8%, helped by a 3.6% rise in comparable traffic.

Tariff refund transformed Target’s reported margins

Target reported that it received and recognized $994 million of IEEPA tariff refunds during the second quarter, recording the amount as a reduction of cost of sales. That accounting treatment flowed directly through gross margin and operating income. Gross margin reached 33.7%, compared with 29.0% a year earlier, with the refund accounting for 3.7 percentage points of the quarter’s gross-margin rate.

Removing that 3.7-point benefit leaves an underlying gross-margin rate of about 30.0%. Target said gross margin excluding the refund expanded by roughly 100 basis points from the prior-year level, helped by an easier comparison with elevated markdowns and purchase-order cancellation costs in 2025, along with growth in advertising and other non-merchandise revenue. The improvement shows that the quarter was not solely a tariff-refund story, even though the refund made the reported margin expansion much larger.

Operating income rose 94.4% to $2.56 billion from $1.32 billion, and the operating margin climbed to 9.6% from 5.2%. The tariff refund again accounted for 3.7 percentage points of the current-quarter operating margin, implying an operating margin of about 5.9% before that benefit. Selling, general and administrative expenses increased 6.8% to $5.73 billion, with the SG&A rate edging up to 21.6% from 21.3% as Target spent more on compensation, field-team hours, incentive pay and planned capital projects.

The refund stems from a major change in U.S. tariff policy earlier this year. On February 20, the U.S. Supreme Court held that the International Emergency Economic Powers Act does not authorize the president to impose tariffs. Target had disclosed after that ruling that it was the importer of record for certain merchandise previously subject to IEEPA tariffs, while warning that the process, timing and amount of any recovery were uncertain. By the second quarter, the company had received enough refunds to recognize the full $994 million benefit reported in the period.

Sales growth was led by traffic, digital demand and non-merchandise revenue

Target’s sales performance improved across several parts of the business. Merchandise sales increased 5.0%, while non-merchandise sales rose 20.1%, reflecting growth in areas including the Roundel advertising business, Target Circle 360 membership revenue and the Target+ marketplace. Comparable sales rose 3.8%, reversing the 1.9% decline reported in the year-earlier quarter.

Most of the comparable-sales increase came from customer traffic rather than bigger baskets. Comparable transactions increased 3.6%, while the average transaction amount rose just 0.2%. Store comparable sales were up 2.7% and digital comparable sales rose 8.7%. Target also said same-day delivery grew by more than 25%, extending the shift toward faster fulfillment options that use its store network.

The company said net sales increased across all six of its core merchandising categories. Fun 101, a seasonal and discretionary category, posted double-digit growth, while Food & Beverage and Beauty recorded high-single-digit gains. The breadth of those increases matters because Target has spent much of the past year trying to restore traffic while lowering prices on frequently purchased items. Management said it has cut prices on more than 10,000 items over the past year.

Capital spending also increased as Target continued to invest in stores. Second-quarter capital expenditures were $1.4 billion, up 27% from a year earlier, driven mainly by more spending on remodels and new locations. The company paid $518 million in dividends and did not repurchase shares during the quarter, leaving about $8.3 billion of authorization remaining under its existing buyback program.

Target raises its 2026 outlook while separating the refund from ongoing performance

Target raised its full-year sales and earnings expectations after the stronger first half. It now expects 2026 net sales growth in a range around 5%, about one percentage point above its prior guidance range. The company also expects a full-year operating margin in a range around 6%, including about 90 basis points of benefit from the second-quarter tariff refunds.

Excluding the refund, Target expects its full-year operating margin to be in a range around 50 basis points above last year’s adjusted operating margin of 4.6%. That points to an underlying margin expectation of roughly 5.1%, although the company presents the forecast as a range rather than a single fixed number. The revised outlook therefore includes an improvement in Target’s operating assumptions beyond the one-time tariff benefit.

Full-year GAAP and adjusted EPS guidance is now $9.90 to $10.90, including the $1.65 per-share benefit already recognized from the second-quarter refunds. Target said that after excluding the refund, the midpoint of its updated EPS outlook is $0.75 above the midpoint of its previous $7.50 to $8.50 guidance range. The company’s current forecast does not include any potential additional tariff refunds, so further recoveries would fall outside the outlook it issued with the second-quarter results.