Target posted stronger-than-expected results for its fiscal second quarter, helped by a large one-time refund from the government. The retailer also raised its full-year outlook, signaling that the turnaround plan it laid out earlier this year is starting to take hold.
Target had faced two years of declining sales and customer traffic, prompting a strategic overhaul announced earlier this year. The company has been refreshing its product assortment, adding new brands, and improving the in-store experience. The strong comparable sales growth this quarter suggests those efforts are gaining traction, though executives caution that the holiday season will be a critical test.
The big story is the money coming back from tariffs. Target received a $994 million pretax benefit tied to refunds on duties it had paid on imported goods. After taxes, that worked out to $752 million in net earnings. That's a meaningful chunk of the company's reported profit per share of $2.46, which came in above the $2.33 analysts on Wall Street had expected.
Without that refund, the headline numbers would have looked thinner. But the underlying business also improved.
Total net sales rose 5.3% from the same period last year. The company also said comparable sales for the full year are tracking ahead of plan.
The tariff refund was a one-time event, and Target's guidance shows what the business looks like without it. For the full year, the company now expects earnings per share between $9.90 and $10.90, including the refund. Excluding that benefit, the range drops to $7.50 to $8.50 per share.
During a call with reporters, Target's CEO said the quarter shows early signs of progress in the company's turnaround plan. "We're encouraged by the level of change we're seeing in our business," he said, "and we're also clear-eyed about the important work still ahead."
The retailer is betting on its home goods and apparel categories to win back shoppers. Target added 10,000 new items and brought in 17 new brands during the quarter. That push is part of a strategy to refresh the assortment and give customers more reasons to visit stores and the website.
The home category, which had been a drag on sales for several quarters, is showing signs of recovery. Executives said customers are responding well to the new products and the improved store experience.
The tariff refund padded the quarter, but the real question is whether Target can keep the momentum going without that help. The company's own guidance shows profit will drop next year when the refund doesn't repeat.
For investors, the key takeaway is that Target's core business is improving. Comparable sales growth of 3.8% is a solid result, especially after two years of struggles. The full-year guidance raise adds confidence that the turnaround is on track.
The real test comes in the holiday quarter, when Target needs to sustain this momentum against strong competition. The company has laid out a plan, and early results suggest it's working. Now it needs to prove the gains can last.