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Target Corporation (TGT - Free Report) expects its underlying operating profitability for fiscal 2026 to finish above last year’s level. The retailer now anticipates its full-year operating income margin rate, excluding tariff refunds, to be in a range around 50 basis points above the 2025 adjusted operating margin rate of 4.6%. The company had earlier guided to an operating income margin rate more than 20 basis points from the year-ago level.
Including the approximately 90-basis-point benefit from second-quarter tariff refunds, TGT foresees fiscal 2026 operating margin rate to be in a range around 6%. Target booked $994 million in pretax tariff refunds during the quarter, which lifted margin performance. The company reported a second-quarter operating margin rate of 9.6%, up from 5.2% a year earlier. Tariff refunds added 3.7 percentage points to the quarter’s margin, but even without that benefit, the operating margin rate was approximately 70 basis points higher year over year.
Gross margin also strengthened. Excluding tariff refunds, the second-quarter gross margin rate expanded by about 100 basis points from the prior-year rate of 29%. The improvement reflected a comparison against last year’s elevated markdowns and purchase-order cancellation costs, along with continued growth in advertising and other non-merchandise revenues.
The improvement came despite some expense pressure. Target’s SG&A rate increased about 30 basis points to 21.6%, reflecting higher compensation costs and planned spending tied to capital projects. Even with those pressures, the company’s updated outlook points to a higher underlying full-year margin than in 2025.
How Does Target Stack Up Against Its Industry?
Target, which competes with Dollar General Corporation (DG - Free Report) and Costco Wholesale Corporation (COST - Free Report) , has seen its shares rally 17.6% over the past three months against the industry’s 7.6% decline. While shares of Dollar General have risen 6.4%, those of Costco have fallen 6.2% in the aforementioned period.
Image Source: Zacks Investment Research
What Does Target’s Current Valuation Suggest?
From a valuation standpoint, Target's forward 12-month price-to-earnings ratio stands at 16.16, lower than the industry’s 26.78. However, the stock is trading above its 12-month median level of 14.83.
Target is trading at a discount to Costco (forward 12-month P/E of 39.72) but at a premium to Dollar General (15.08).
Image Source: Zacks Investment Research
What Do Earnings Estimates Signal for Target?
The Zacks Consensus Estimate for Target’s earnings per share for the current and next fiscal year has increased by 16 cents and 9 cents to $10.43 and $9.38, respectively, over the past 30 days.
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Target Sees Underlying 2026 Margin Above 2025 as Profitability Improves
Key Takeaways
Target Corporation (TGT - Free Report) expects its underlying operating profitability for fiscal 2026 to finish above last year’s level. The retailer now anticipates its full-year operating income margin rate, excluding tariff refunds, to be in a range around 50 basis points above the 2025 adjusted operating margin rate of 4.6%. The company had earlier guided to an operating income margin rate more than 20 basis points from the year-ago level.
Including the approximately 90-basis-point benefit from second-quarter tariff refunds, TGT foresees fiscal 2026 operating margin rate to be in a range around 6%. Target booked $994 million in pretax tariff refunds during the quarter, which lifted margin performance. The company reported a second-quarter operating margin rate of 9.6%, up from 5.2% a year earlier. Tariff refunds added 3.7 percentage points to the quarter’s margin, but even without that benefit, the operating margin rate was approximately 70 basis points higher year over year.
Gross margin also strengthened. Excluding tariff refunds, the second-quarter gross margin rate expanded by about 100 basis points from the prior-year rate of 29%. The improvement reflected a comparison against last year’s elevated markdowns and purchase-order cancellation costs, along with continued growth in advertising and other non-merchandise revenues.
The improvement came despite some expense pressure. Target’s SG&A rate increased about 30 basis points to 21.6%, reflecting higher compensation costs and planned spending tied to capital projects. Even with those pressures, the company’s updated outlook points to a higher underlying full-year margin than in 2025.
How Does Target Stack Up Against Its Industry?
Target, which competes with Dollar General Corporation (DG - Free Report) and Costco Wholesale Corporation (COST - Free Report) , has seen its shares rally 17.6% over the past three months against the industry’s 7.6% decline. While shares of Dollar General have risen 6.4%, those of Costco have fallen 6.2% in the aforementioned period.
Image Source: Zacks Investment Research
What Does Target’s Current Valuation Suggest?
From a valuation standpoint, Target's forward 12-month price-to-earnings ratio stands at 16.16, lower than the industry’s 26.78. However, the stock is trading above its 12-month median level of 14.83.
Target is trading at a discount to Costco (forward 12-month P/E of 39.72) but at a premium to Dollar General (15.08).
Image Source: Zacks Investment Research
What Do Earnings Estimates Signal for Target?
The Zacks Consensus Estimate for Target’s earnings per share for the current and next fiscal year has increased by 16 cents and 9 cents to $10.43 and $9.38, respectively, over the past 30 days.
Image Source: Zacks Investment Research
Target currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.