Target hikes outlook as sales rebound and huge tariff refund boosts bottom line

Target on Wednesday posted quarterly earnings that were boosted by tariff refunds and raised its full-year guidance, as the retailer shows more signs its turnaround is taking hold.

The company said net sales climbed 5.3% from the year prior. Comparable sales grew 3.8%, topping Wall Street estimates of 2.4%, according to StreetAccount. Target added in its release that it saw "broad-based" strength across categories.

"We're encouraged by the progress made so far, and we're also clear-eyed about the important work still ahead," CEO Michael Fiddelke said on a call with reporters. "Q2 is an important step forward in the plan we laid out earlier this year to open a new chapter of growth for Target. What you saw from us this quarter reflects the level of change we knew would be needed to put our strategy in motion."

Target's fiscal second-quarter results also included a $752 million boost to net earnings, or $1.65 per share, from tariff refunds. The company said its second-quarter gross margin and operating income included a $994 million pretax benefit from that repayment.

Target hiked its full fiscal-year outlook, due to both stronger sales trends and the one-time boost to its bottom line. The retailer raised its full-year net sales growth guidance to about 5%, up by 1 percentage point.

It expects full-year EPS, including the tariff refunds, to be between $9.90 and $10.90. Excluding the repayment, that range would be $8.25 to $9.25 per share, compared with its previous outlook of $7.50 to $8.50 per share.

Though Target has posted promising results for two straight quarters, Fiddelke said he remains cautious on the company's turnaround.

"To be clear, we have much more work to do," he told reporters. "The combination of stronger execution and improving guest feedback provides a firm foundation on which to build as we continue advancing our strategy."

For the three-month period ended Aug. 1, Target reported net income of $1.88 billion, or $4.11 per share, compared with $935 million, or $2.05 per share, the year prior. That comparison includes the boon Target received from collecting its tariff refunds.

"Two strong quarters is not the goal," Fiddelke told reporters. "Sustained, durable top- and bottom-line growth over time is what we're after."

Digital comparable sales jumped 8.7% in the quarter, as same-day delivery grew more than 25%, according to the company.

Target said it saw strength across its food and beauty businesses, as all six of its major categories grew. However, its apparel and home categories lagged behind other segments, a discrepancy company executives said they're intent on fixing.