Target reported a sharp increase in second-quarter operating income as improving underlying margins combined with a nearly $1 billion benefit from previously paid tariff refunds. Operating income doubled to $2.6 billion from $1.3 billion in the prior-year quarter.
However, the latest results included a $994 million benefit from tariff refunds. Operating margin increased to 9.6% from 5.2%, with the refunds contributing 370 basis points to the reported margin.
The tariff benefit therefore accounted for a substantial portion of the year-over-year increase in reported operating profit.
Target’s underlying profitability nevertheless improved as well.
Gross margin reached 33.7%, including 370 basis points of benefit from the refunds. Excluding that benefit, gross margin expanded approximately 100 basis points from the prior year’s 29% level.
Target attributed the underlying improvement to a favorable comparison against elevated markdowns and purchase-order cancellation costs in the prior-year period, along with continued growth in advertising and other non-merchandise revenue.
Net sales increased 5.3% to $26.5 billion, while comparable sales rose 3.8%. Store comparable sales increased 2.7%, and digital comparable sales climbed 8.7%.
Same-day delivery was particularly strong, increasing more than 25%, while non-merchandise sales grew more than 20%, driven by growth from the Roundel advertising business, Target Circle 360 membership revenue, and the Target+ marketplace.
Tariff refunds contributed $752 million to net earnings and added about $1.65 to both GAAP and adjusted EPS.
Target raised its full-year net sales growth expectation to about 5%, up one percentage point from its previous outlook.
The company now expects a full-year operating margin around 6%, including approximately 90 basis points of benefit from the second-quarter tariff refunds. Excluding refunds, Target expects the operating margin to be approximately 50 basis points above the prior year’s adjusted 4.6% margin.
KEY QUOTES:
“Second quarter results build on the encouraging momentum we saw in the first quarter, giving us increasing confidence that our strategy is resonating with our guests and strengthening our leadership position in style, design, and value.”
Michael Fiddelke, CEO of Target
