WS Investor
20 May 2026, 14:21
Target Falls 6.5% as Margin Pressure and Elevated Costs Overshadow Strong Sales Growth
Target dropped 6.5% today despite reporting first quarter net sales growth of 6.7%, well above expectations, as investors focused on the margin picture and a profits outlook that fell well short of what the topline momentum might have suggested.
Net sales for the quarter reached $25.4 billion, up 6.7% year over year, with comparable sales growing 5.6% — comprising a 4.7% increase in comparable store sales and 8.9% digital comparable growth. Traffic grew 4.4%, all six core merchandise categories grew year over year, and same-day delivery powered by Target Circle 360 surged more than 27%. Non-merchandise sales, including Roundel advertising revenue and marketplace fees, grew nearly 25%. By almost any topline measure, the quarter was genuinely strong.
The problem was profitability. First quarter adjusted EPS came in at $1.71, up 32% from last year's adjusted $1.30 but 24% below the prior year's GAAP figure of $2.27, which included non-recurring legal settlement gains. Operating income margin of 4.5% remained thin, reflecting higher compensation costs, increased capital project spending and elevated marketing expense, only partially offset by supply chain productivity gains, lower markdown rates and non-merchandise revenue growth. Gross margin improved modestly to 29.0% from 28.2%, but SG&A as a percentage of sales crept higher.
For the full year, Target raised its net sales growth outlook by two percentage points to around 4%, and guided for GAAP and adjusted EPS near the high end of the prior $7.50 to $8.50 range. Operating margin is expected to improve more than 20 basis points above 2025's adjusted 4.6%.
CEO Michael Fiddelke acknowledged encouraging early signs from the company's clarified strategy while tempering expectations, noting there is much more work ahead and emphasizing the need for discipline in an uncertain operating environment.
The 6.5% decline reflects a market that found the margin trajectory and thin operating profitability difficult to reconcile with a valuation that demands more than modest earnings growth — particularly on a day when TJX demonstrated what truly exceptional retail execution looks like.
Target dropped 6.5% today despite reporting first quarter net sales growth of 6.7%, well above expectations, as investors focused on the margin picture and a profits outlook that fell well short of what the topline momentum might have suggested.
Net sales for the quarter reached $25.4 billion, up 6.7% year over year, with comparable sales growing 5.6% — comprising a 4.7% increase in comparable store sales and 8.9% digital comparable growth. Traffic grew 4.4%, all six core merchandise categories grew year over year, and same-day delivery powered by Target Circle 360 surged more than 27%. Non-merchandise sales, including Roundel advertising revenue and marketplace fees, grew nearly 25%. By almost any topline measure, the quarter was genuinely strong.
The problem was profitability. First quarter adjusted EPS came in at $1.71, up 32% from last year's adjusted $1.30 but 24% below the prior year's GAAP figure of $2.27, which included non-recurring legal settlement gains. Operating income margin of 4.5% remained thin, reflecting higher compensation costs, increased capital project spending and elevated marketing expense, only partially offset by supply chain productivity gains, lower markdown rates and non-merchandise revenue growth. Gross margin improved modestly to 29.0% from 28.2%, but SG&A as a percentage of sales crept higher.
For the full year, Target raised its net sales growth outlook by two percentage points to around 4%, and guided for GAAP and adjusted EPS near the high end of the prior $7.50 to $8.50 range. Operating margin is expected to improve more than 20 basis points above 2025's adjusted 4.6%.
CEO Michael Fiddelke acknowledged encouraging early signs from the company's clarified strategy while tempering expectations, noting there is much more work ahead and emphasizing the need for discipline in an uncertain operating environment.
The 6.5% decline reflects a market that found the margin trajectory and thin operating profitability difficult to reconcile with a valuation that demands more than modest earnings growth — particularly on a day when TJX demonstrated what truly exceptional retail execution looks like.
