01—Abstract
Summary
Summary of the 8-K filed May 20, 2026. Cited figures are marked; the original filing is the authoritative source.
Target Corporation (TGT) reported first quarter 2026 results for the three months ended May 2, 2026, that beat management's expectations on the top line.
Net sales rose 6.7% year over year to $25.4 billiona, with merchandise sales up 6.4%, comparable sales up 5.6% (traffic +4.4%), and digital comparable sales up 8.9%. Non-merchandise revenue grew about 25%, driven by Roundel advertising, Target Circle 360 membership, and the Target+ marketplace. Management raised its 2026 net sales growth outlook to around 4%, two points above the prior range.
Profitability is the weaker part of the story. GAAP and Adjusted EPS were $1.71b, down 24% from the prior-year GAAP EPS of $2.27. That comparison is distorted by $441 million of after-tax interchange fee settlement gains in Q1 2025, so against the prior-year Adjusted EPS of $1.30 the figure is up 32%.
Operating margin was 4.5%c, versus 6.2% GAAP and 3.7% adjusted a year ago. SG&A expense rate rose to 21.9% from 21.7% on an adjusted basis, reflecting higher compensation, incentive pay, marketing, and capital-project spending. Trailing-twelve-month after-tax ROIC fell to 12.4% from 15.1%.
Balance sheet and capital allocation shifted toward investment and debt reduction. Capital expenditures rose 31% to $1.0 billion, cash fell to $3.5 billiond from $5.5 billion at fiscal year-end, and the company repaid $1.0 billion of long-term debt. No shares were repurchased in the quarter, leaving about $8.3 billion of authorization.
Dividends were $516 million. Full-year 2026 EPS guidance of $7.50 to $8.50 was reiterated, with the company now expecting EPS near the high end of that range, and operating margin is expected to exceed 4.6% adjusted 2025 levels by more than 20 basis points.
02—Key points
Key Highlights
- Net sales of $25.4B, up 6.7% YoY, ahead of expectations; comparable sales +5.6% with traffic +4.4%
- Digital comparable sales +8.9%, with same-day delivery up more than 27% via Target Circle 360
- Non-merchandise sales up ~25%, led by Roundel advertising ($246M vs. $163M), membership, and Target+ marketplace
- GAAP and Adjusted EPS of $1.71, down 24% vs. prior-year GAAP EPS of $2.27 (which included $0.97/share interchange settlement gains) but up 32% vs. prior-year Adjusted EPS of $1.30
- Operating margin of 4.5% vs. 3.7% adjusted prior year; SG&A rate rose to 21.9% from 21.7% adjusted on higher compensation, marketing, and incentive costs
- 2026 guidance: net sales growth around 4% (raised 2 points); EPS near high end of $7.50–$8.50; operating margin up 20+ bps vs. 4.6% adjusted 2025
- No share repurchases in Q1; $8.3B authorization remaining; capex up 31% to $1.0B; trailing ROIC down to 12.4% from 15.1%
03—Questions
Frequently Asked Questions
Did Target's Q1 2026 earnings really decline?
Reported GAAP EPS fell 24% to $1.71, but the prior-year figure included about $441 million of after-tax interchange fee settlement gains. On an adjusted basis that excludes these gains, EPS rose 32% from $1.30. Operating income is similarly distorted: it fell 23% on a GAAP basis but rose 29% on an adjusted basis.
What changed in Target's 2026 outlook?
Management raised its net sales growth expectation to around 4%, two percentage points above the prior range, and still expects growth in every quarter. It also expects operating margin more than 20 basis points above 2025's 4.6% adjusted rate. EPS guidance of $7.50 to $8.50 was kept, with results now expected near the high end.
Why are margins under pressure despite strong sales?
Gross margin improved to 29.0% from 28.2%, helped by supply chain productivity, advertising growth, and lower markdowns. However, SG&A rose to 21.9% of sales from 21.7% adjusted, driven by field-team compensation and training, higher incentive pay, marketing, and capital-project costs. Those expenses absorbed most of the gross margin gains.
Is Target still returning cash to shareholders?
Dividends continue, at $516 million in Q1 and a 1.8% increase in the per-share rate. Target made no share repurchases in the quarter and has about $8.3 billion left under its August 2021 authorization. Cash fell to $3.5 billion, and the company paid down $1.0 billion of debt while raising capex to $1.0 billion, so buybacks appear deprioritized for now.
Why did Target's ROIC decline?
Trailing-twelve-month after-tax ROIC fell to 12.4% from 15.1%. The decline reflects lower operating income over the period, which excludes the prior-year interchange gains, and business transformation costs that reduced ROIC by about 0.6 percentage points. Higher invested capital from store investments also contributed.
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