It has been about a month since the last earnings report for Target (TGT Quick QuoteTGT - Free Report) . Shares have added about 3.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Target due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important drivers.

Target Beats Q1 Earnings Estimates on Strong Sales, Raises View

Target reported first-quarter fiscal 2026 results, wherein both top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year. The company witnessed broad-based momentum across merchandise categories and sales channels, aided by improved traffic trends, solid digital performance and continued strength in high-margin non-merchandise businesses. Management also raised its fiscal 2026 sales outlook following the better-than-expected start to the year.

Target’s Quarterly Performance: Key Metrics & Insights

Target reported adjusted earnings of $1.71 per share, which beat the Zacks Consensus Estimate of $1.41 by 21.3%. The bottom line also increased 31.5% from adjusted earnings of $1.30 reported in the year-ago period. The big-box retailer generated net sales of $25,443 million, which surpassed the Zacks Consensus Estimate of $24,460 million by 4%. The metric increased 6.7% year over year from $23,846 million.

Merchandise sales rose 6.4% to $24,894 million, while non-merchandise sales surged 24.6%, driven by strong growth in Roundel advertising revenues, Target Circle 360 membership income and the Target+ marketplace. Advertising revenues climbed to $246 million from $163 million in the prior-year quarter.

Meanwhile, comparable sales increased 5.6% against a decline of 3.8% in the year-ago quarter. The improvement reflected a 4.4% rise in traffic and a 1.1% increase in average transaction amount. Comparable store sales rose 4.7%, while comparable digital sales jumped 8.9%, led by more than 27% growth in same-day delivery powered by Target Circle 360. 

All six core merchandising categories registered year-over-year sales growth in the quarter. Food & Beverage, Beauty and Household Essentials remained key growth drivers, while Hardlines, Apparel and Home categories also posted gains amid improving consumer demand trends.

TGT’s Margin Performance

Gross margin expanded 80 basis points to 29% from 28.2% last year. The improvement was driven by lower markdown rates, supply-chain productivity gains, and growth in advertising and other high-margin revenues, partially offset by higher product costs. 

SG&A expense rate increased to 21.9% from the prior-year GAAP rate of 19.3%. Excluding interchange fee settlement gains in the year-ago quarter, adjusted SG&A expense rate increased modestly from 21.7%. The increase reflected higher compensation costs, additional field training hours, higher incentive compensation, increased marketing expenses and planned investments in capital projects. 

Adjusted operating income increased 29.1% year over year to $1,135 million, while adjusted operating margin expanded to 4.5% from 3.7% in the prior-year quarter.

Target’s Financial Health Snapshot

Target ended the quarter with cash and cash equivalents of $3,534 million compared with $5,488 million at fiscal 2025-end. Inventory remained well controlled at $12,317 million versus $13,048 million in the prior-year quarter. Long-term debt and other borrowings stood at $14,282 million, while shareholders’ investment totaled $16,395 million.

Capital expenditures increased 31% year over year to $1 billion, primarily driven by investments in new stores and remodel activity.

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 12.4%, down from 15.1% in the prior-year period.

A Sneak Peek Into TGT’s FY26 Outlook

The company raised its fiscal 2026 net sales outlook following stronger-than-expected first-quarter performance. Target now expects net sales growth of around 4% for the current fiscal year compared with its earlier expectation of about 2% growth. The company also continues to anticipate net sales growth in every quarter of the year.

Management expects the fiscal 2026 operating income margin rate to improve by more than 20 basis points from the adjusted operating margin rate of 4.6% reported in fiscal 2025. The company expects GAAP and adjusted earnings per share near the high end of the previously guided range of $7.50-$8.50.

Management emphasized that it remains focused on disciplined investments in store operations, technology capabilities, fulfillment services and merchandising initiatives while maintaining flexibility in an uncertain macroeconomic environment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a upward trend in fresh estimates.

VGM Scores

Currently, Target has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock has a score of B on the value side, putting it in the top 40% for value investors.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, Target has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.