Target Corporation

05/29/2026 | Press release | Distributed by Public on 05/29/2026 13:57

Quarterly Report for Quarter Ending May 2, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Financial Summary
First quarter 2026 included the following:
•Net Sales of $25.4 billion, an increase of 6.7 percent from the comparable prior-year period, driven by:
•A comparable sales increase of 5.6 percent, reflecting a 4.4 percent increase in traffic and a 1.1 percent increase in average transaction amount;
•The sales contribution from new stores; and
•Non-merchandise sales growth of 24.6 percent, primarily driven by growth in our Roundel digital advertising business offering.
•GAAP and Adjusted operating income1 of $1.1 billion was 22.9 percent lower than prior year GAAP operating income, which included $593 million of pretax net gains on interchange fee settlements. Excluding the settlement gains, Adjusted operating income was 29.1 percent higher than $0.9 billion in the prior-year.
Earnings Per Share Three Months Ended
May 2, 2026 May 3, 2025 Change
GAAP diluted earnings per share $ 1.71 $ 2.27 (24.5) %
Adjustments - (0.97)
Adjusted diluted earnings per share1
$ 1.71 $ 1.30 31.6 %
Note: Amounts may not foot due to rounding.
1Adjusted diluted earnings per share (Adjusted EPS) and Adjusted operating income, non-GAAP metrics, exclude the impact of certain items. Management believes that Adjusted EPS and Adjusted operating income are useful in providing period-to-period comparisons of the results of our operations. A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 20.
We report after-tax return on invested capital (ROIC) because we believe ROIC provides a meaningful measure of our capital allocation effectiveness over time. For the trailing twelve months ended May 2, 2026, after-tax ROIC was 12.4 percent, compared with 15.1 percent for the trailing twelve months ended May 3, 2025. The calculation of ROIC is provided on page 21.
Business Environment
Beginning in 2025, the U.S. imposed additional tariffs on a wide range of imported products using various legal authorities, including the International Emergency Economic Powers Act (IEEPA). These tariffs were subsequently modified through incremental increases, decreases, pauses, and limited exemptions. Approximately one-half of the merchandise we offer is sourced from outside the U.S., either directly or through our vendors, with China as the single largest source of merchandise we import.
On February 20, 2026, the U.S. Supreme Court ruled that tariffs imposed under IEEPA were not authorized by the statute. While the ruling did not establish a refund process, the U.S. Court of International Trade (CIT) subsequently ordered U.S. Customs and Border Protection (CBP) to implement a process to administer refunds, which CBP began executing with the April 20, 2026 deployment of the Consolidated Administration and Processing of Entries (CAPE) system for certain IEEPA refund claims.
We incurred tariffs under IEEPA, and are following the established refund filing and validation process through the CAPE system, along with other importers seeking IEEPA refunds. As of May 2, 2026, no refunds had been received and no receivable was recorded. Subsequent to quarter-end, we began receiving refunds, which to date have not been material. Due to the remaining uncertainties related to the process, timing, and amount of potential refunds, as well as a potential appeal of the CIT's order to issue refunds, we are unable to estimate the ultimate financial effects of IEEPA refunds.
After the Supreme Court ruling in February, the U.S. administration instituted new tariffs against most major trading partners, and has previewed future actions that could restore or exceed the level of the IEEPA tariffs. We continue to assess and respond to the evolving consumer, legal and regulatory environment.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL SUMMARY
Index to Notes
The collective interaction of tariffs, IEEPA refunds, sourcing strategies, pricing actions, consumer response and behaviors, and other factors could materially impact our sales, results of operations, and financial condition in future periods.
Business Transformation Initiatives
In 2025, we announced a multi-year initiative to transform various aspects of our business-including our organizational structure, processes, and technology-to enable greater agility and optimize the use of the Company's assets. We incurred costs and charges related to our business transformation initiatives in 2025, including a reduction in our headquarters workforce. Refer to Note 7 to the Financial Statements in our Form 10-K for the fiscal year ended January 31, 2026, for additional information.
We did not incur any costs or charges related to these initiatives during the three months ended May 2, 2026, or the comparable prior-year period.
We may incur additional costs and charges related to these initiatives in future periods, which may adversely affect our results of operations and financial condition; however, we cannot reasonably estimate the amount or timing of such costs and charges.
Analysis of Results of Operations
Summary of Operating Income Three Months Ended
(dollars in millions) May 2, 2026 May 3, 2025 Change
Net sales $ 25,443 $ 23,846 6.7 %
Cost of sales 18,061 17,128 5.4
SG&A expenses 5,562 4,591 21.1
Depreciation and amortization (exclusive of depreciation included in cost of sales) 685 655 4.6
Operating income $ 1,135 $ 1,472 (22.9) %
Adjusted SG&A expenses (a)
$ 5,562 $ 5,183 7.3 %
Adjusted operating income (a)
1,135 879 29.1
Rate Analysis Three Months Ended
May 2, 2026 May 3, 2025
Gross margin rate 29.0 % 28.2 %
SG&A expense rate 21.9 19.3
Adjusted SG&A expense rate (a)
21.9 21.7
Depreciation and amortization expense rate (exclusive of depreciation included in cost of sales) 2.7 2.7
Operating income margin rate 4.5 6.2
Adjusted operating income margin rate (a)
4.5 3.7
Note: Gross margin (GM) is calculated as Net Sales less Cost of Sales. All rates are calculated by dividing the applicable amount by Net Sales.
(a)Adjusted SG&A expenses, Adjusted SG&A expense rate, Adjusted operating income, and Adjusted operating income margin rate, which are non-GAAP measures, exclude the impact of certain items. Management believes that these measures are useful in providing period-to-period comparisons of the results of our operations. A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 20.
Net Sales
Net sales includes all Merchandise Sales and revenues from other sources, most notably advertising revenue and credit card profit-sharing income.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF RESULTS OF OPERATIONS
Index to Notes
Merchandise Sales are net of expected returns, and our estimate of gift card breakage. Comparable sales include all Merchandise Sales, except sales from stores open less than 13 months or that have been closed. We use comparable sales to evaluate the performance of our stores and digital channels by measuring the change in sales for a period over the comparable, prior-year period of equivalent length. Comparable sales measures vary across the retail industry. As a result, our comparable sales calculation is not necessarily comparable to similarly titled measures reported by other companies. Digitally originated sales include all Merchandise Sales initiated through mobile/computer applications and our websites. Our stores fulfill the majority of digitally originated sales, including shipment from stores to guests, store Order Pickup or Drive Up, and Same Day Delivery. Digitally originated sales may also be fulfilled through our distribution centers, our vendors, or other third parties.
Merchandise Sales growth-from both comparable sales and new stores-represents an important driver of our long-term profitability. We expect that comparable sales growth will drive a significant portion of our total sales growth. We believe that our ability to successfully differentiate our guests' shopping experience through a careful combination of merchandise assortment, price, convenience, guest experience, and other factors will over the long-term drive both increasing shopping frequency (number of transactions, or "traffic") and the amount spent each visit (average transaction amount).
Comparable Sales Three Months Ended
May 2, 2026 May 3, 2025
Comparable sales change 5.6 % (3.8) %
Drivers of change in comparable sales
Number of transactions (traffic) 4.4 (2.4)
Average transaction amount 1.1 (1.4)
Comparable Sales by Channel Three Months Ended
May 2, 2026 May 3, 2025
Stores originated comparable sales change 4.7 % (5.7) %
Digitally originated comparable sales change 8.9 4.7
Merchandise Sales by Channel Three Months Ended
May 2, 2026 May 3, 2025
Stores originated 79.7 % 80.2 %
Digitally originated 20.3 19.8
Total 100 % 100 %
Merchandise Sales by Fulfillment Channel Three Months Ended
May 2, 2026 May 3, 2025
Stores 97.6 % 97.6 %
Other 2.4 2.4
Total 100 % 100 %
Note: Merchandise Sales fulfilled by stores include in-store purchases and digitally originated sales fulfilled by shipping merchandise from stores to guests, Order Pickup, Drive Up, and Same Day Delivery.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF RESULTS OF OPERATIONS
Index to Notes
Merchandise Sales by Product Category Three Months Ended
May 2, 2026 May 3, 2025
Apparel & accessories 16 % 16 %
Beauty 14 13
Food & beverage 25 25
Hardlines (Fun 101) 14 13
Home furnishings & décor 13 14
Household essentials 18 19
Total 100 % 100 %
Note 2 to the Financial Statements provides additional product category sales information. The collective interaction of a broad array of macroeconomic, competitive, and consumer behavioral factors, as well as sales mix and the transfer of sales to new stores, makes further analysis of sales metrics infeasible.
Store Data
Change in Number of Stores Three Months Ended
May 2, 2026 May 3, 2025
Beginning store count 1,995 1,978
Opened 7 3
Ending store count 2,002 1,981
Number of Stores and Number of Stores
Retail Square Feet (a)
Retail Square Feet May 2, 2026 January 31, 2026 May 3, 2025 May 2, 2026 January 31, 2026 May 3, 2025
170,000 or more sq. ft. 274 273 273 49,045 48,824 48,824
50,000 to 169,999 sq. ft. 1,581 1,576 1,562 197,978 197,274 195,436
49,999 or less sq. ft. 147 146 146 4,460 4,420 4,404
Total 2,002 1,995 1,981 251,483 250,518 248,664
(a)In thousands; reflects total square feet less office, supply chain facility, and vacant space.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF RESULTS OF OPERATIONS
Index to Notes
Gross Margin Rate
Quarter-to-Date
For the three months ended May 2, 2026, our gross margin rate was 29.0 percent compared with 28.2 percent in the comparable prior-year period. The increase reflected net benefits from:
•merchandising, primarily due to lower markdown rates and growth in advertising and other revenues, partially offset by higher product costs; and
•supply chain and digital fulfillment, including productivity improvements in supply chain facilities, and the leveraging impact of higher sales.
Selling, General, and Administrative Expense Rate
For the three months ended May 2, 2026, our SG&A expense rate was 21.9 percent compared with 19.3 percent for the comparable prior-year period. Our comparable prior-period rate included a 2.5 percentage point benefit from interchange fee settlements, which are further described in Note 3 to the Financial Statements. Excluding this item, our Adjusted SG&A expense rate was 21.7 percent. The remaining 0.2 percentage point increase in 2026 reflected higher compensation expense, including stores payroll and incentive compensation, new store and remodel-related expenses, and the net impact of other cost increases. These cost increases more than offset the leverage benefit of higher sales.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
OTHER PERFORMANCE FACTORS
Index to Notes
Other Performance Factors
Net Interest Expense
For the three months ended May 2, 2026, net interest expense was $117 million compared with $116 million in the comparable prior-year period.
Provision for Income Taxes
Our effective income tax rate for the three months ended May 2, 2026, was 24.4 percent compared with 25.0 percent in the comparable prior-year period. The decrease reflects lower discrete tax expense in the current year, primarily related to share-based compensation.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Index to Notes
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
To provide additional transparency, we have disclosed non-GAAP adjusted diluted earnings per share (Adjusted EPS), adjusted SG&A expenses, adjusted SG&A expense rate, adjusted operating income, and adjusted operating income margin rate. These measures exclude certain items presented below. We believe this information is useful in providing period-to-period comparisons of the results of our operations. These measures are not in accordance with, or an alternative to, generally accepted accounting principles in the U.S. (GAAP). The most comparable GAAP measures are diluted earnings per share, SG&A expenses, SG&A expense rate, operating income, and operating income margin rate. Adjusted EPS, adjusted SG&A expenses, adjusted SG&A expense rate, adjusted operating income, and adjusted operating income margin rate should not be considered in isolation or as a substitution for analysis of our results as reported in accordance with GAAP. Other companies may calculate these measures differently, or not provide similar measures, limiting the usefulness of the measures for comparisons with other companies.
Reconciliation of Non-GAAP Adjusted EPS Three Months Ended
May 2, 2026 May 3, 2025
(millions, except per share data) Pretax Net of Tax Per Share Pretax Net of Tax Per Share
GAAP diluted earnings per share $ 1.71 $ 2.27
Adjustments
Interchange fee settlements (a)
$ - $ - $ - $ (593) $ (441) $ (0.97)
Adjusted EPS $ 1.71 $ 1.30
Reconciliation of Non-GAAP Adjusted SG&A Expenses and Adjusted Operating Income Three Months Ended
May 2, 2026 May 3, 2025
SG&A Expenses Operating Income SG&A Expenses Operating Income
(dollars in millions) Dollars Rate Dollars Rate Dollars Rate Dollars Rate
Reported, GAAP measure $ 5,562 21.9 % $ 1,135 4.5 % $ 4,591 19.3 % $ 1,472 6.2 %
Adjustments
Interchange fee settlements (a)
- - - - 593 2.5 % (593) (2.5) %
Adjusted, Non-GAAP measure $ 5,562 21.9 % $ 1,135 4.5 % $ 5,183 21.7 % $ 879 3.7 %
Note: Amounts may not foot due to rounding. Rates are calculated by dividing the applicable amount by Net Sales.
(a)The adjustment removes the favorable impact of the settlement gains from prior-year SG&A Expenses and Operating Income. Note 3 to the Financial Statements provides additional information.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Index to Notes
We have also disclosed after-tax ROIC, which is a ratio based on GAAP information, with the exception of the add-back of operating lease interest to operating income. We believe this metric is useful in assessing the effectiveness of our capital allocation over time. Other companies may calculate ROIC differently, limiting the usefulness of the measure for comparisons with other companies.
After-Tax Return on Invested Capital
(dollars in millions)
Trailing Twelve Months
Numerator May 2, 2026 May 3, 2025
Operating income $ 4,781 $ 5,742
+ Net other income 84 102
EBIT 4,865 5,844
+ Operating lease interest (a)
173 165
- Income taxes (b)
1,103 1,373
Net operating profit after taxes $ 3,935 $ 4,636
Denominator May 2, 2026 May 3, 2025 May 4, 2024
Current portion of long-term debt and other borrowings $ 1,133 $ 1,139 $ 2,614
+ Noncurrent portion of long-term debt 14,282 14,334 13,487
+ Shareholders' investment 16,395 14,947 13,840
+ Operating lease liabilities (c)
3,792 3,922 3,723
- Cash and cash equivalents 3,534 2,887 3,604
Invested capital $ 32,068 $ 31,455 $ 30,060
Average invested capital (d)
$ 31,761 $ 30,757
After-tax return on invested capital (e)
12.4 % 15.1 %
(a)Represents the add-back to operating income driven by the hypothetical interest expense we would incur if the property under our operating leases were owned or accounted for as finance leases. Calculated using the discount rate for each lease and recorded as a component of rent expense within Operating Income. Operating lease interest is added back to Operating Income in the ROIC calculation to control for differences in capital structure between us and our competitors.
(b)Calculated using the effective tax rates, which were 21.9 percent and 22.8 percent for the trailing twelve months ended May 2, 2026, and May 3, 2025, respectively. For the trailing twelve months ended May 2, 2026, and May 3, 2025, includes tax effect of $1.1 billion and $1.3 billion, respectively, related to EBIT, and $38 million related to operating lease interest.
(c)Total short-term and long-term operating lease liabilities included within Accrued and Other Current Liabilities and Noncurrent Operating Lease Liabilities, respectively.
(d)Average based on the invested capital at the end of the current period and the invested capital at the end of the comparable prior period.
(e)For the trailing twelve months ended May 2, 2026, includes the impact of business transformation costs incurred within the trailing twelve-month period, which decreased after-tax ROIC by 0.6 percentage points. For the trailing twelve months ended May 3, 2025, includes the impact of after-tax net gains on interchange fee settlements, which increased after-tax ROIC by 1.4 percentage points. Note 3 to the Financial Statements provides additional information.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF FINANCIAL CONDITION
Index to Notes
Analysis of Financial Condition
Liquidity and Capital Resources
Capital Allocation
We follow a disciplined and balanced approach to capital allocation based on the following priorities, ranked in order of importance: first, we fully invest in opportunities to profitably grow our business, create sustainable long-term value, and maintain our current operations and assets; second, we maintain a competitive quarterly dividend and seek to grow it annually; and finally, we return any excess cash to shareholders by repurchasing shares within the limits of our credit rating goals.
Our cash and cash equivalents balance was $3.5 billion, $5.5 billion, and $2.9 billion as of May 2, 2026, January 31, 2026, and May 3, 2025, respectively. Our cash and cash equivalents balance includes short-term investments of $2.5 billion, $4.6 billion, and $2.0 billion as of May 2, 2026, January 31, 2026, and May 3, 2025, respectively. Our investment policy is designed to preserve principal and liquidity of our short-term investments. This policy allows investments in large money market funds or in highly-rated direct short-term instruments that mature in 60 days or less. We also place dollar limits on our investments in individual funds or instruments.
Operating Cash Flows
Cash flows provided by operating activities were $0.7 billion and $0.3 billion for the three months ended May 2, 2026, and May 3, 2025, respectively. The increase was primarily due to higher accounts payable leverage and lower inventory levels. These benefits were partially offset by lower net earnings, reflecting the prior-year benefit from gains on interchange fee settlements, and higher income tax payments in the current year, reflecting timing.
Inventory
Inventory was $12.3 billion as of May 2, 2026 and January 31, 2026, and $13.0 billion as of May 3, 2025. The year-over-year decrease reflects higher than expected sales in the current year and the timing of inventory receipts.
Investing Cash Flows
Cash required for investing activities increased to $1.0 billion for the three months ended May 2, 2026, compared to $0.8 billion for the three months ended May 3, 2025, due to higher capital expenditures.
Dividends
We paid dividends totaling $516 million ($1.14 per share) for the three months ended May 2, 2026, and $510 million ($1.12 per share) for the three months ended May 3, 2025, a per share increase of 1.8 percent. We declared dividends totaling $526 million ($1.14 per share) during the first quarter of 2026 and $515 million ($1.12 per share) during the first quarter of 2025, a per share increase of 1.8 percent. We have paid dividends every quarter since our 1967 initial public offering, and it is our intent to continue to do so in the future.
Share Repurchase
We did not repurchase any shares during the three months ended May 2, 2026. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds of this Quarterly Report on Form 10-Q and Note 8 to the Financial Statements for more information.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS
ANALYSIS OF FINANCIAL CONDITION
Index to Notes
Financing
Our financing strategy is to ensure liquidity and access to capital markets, to maintain a balanced spectrum of debt maturities, and to manage our net exposure to floating interest rate volatility. Within these parameters, we seek to minimize our borrowing costs. Our ability to access the long-term debt and commercial paper markets has provided us with ample sources of liquidity. Our continued access to these markets depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings. As of May 2, 2026, our credit ratings were as follows:
Credit Ratings Moody's
S&P
Long-term debt A2 A
Commercial paper P-1 A-1
If our credit ratings were lowered, our ability to access the debt markets, our cost of funds, and other terms for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically, and there is no guarantee our current credit ratings will remain the same as described above.
We repaid $1.0 billion of unsecured debt in April 2026. Note 6 to the Financial Statements provides additional information.
We have the ability to obtain short-term financing from time to time under our commercial paper program and credit facilities. Our committed $1.0 billion 364-day and $3.0 billion unsecured revolving credit facilities that will expire in October 2026 and October 2028, respectively, provide a liquidity backstop to our commercial paper program. No balances were outstanding under either credit facility or our commercial paper program at any time during 2026 or 2025. Note 6 to the Financial Statements provides additional information.
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facilities also contain a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, as of May 2, 2026, no notes or debentures contained provisions requiring acceleration of payment upon a credit rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control and (ii) our long-term credit ratings are either reduced and the resulting rating is non-investment grade, or our long-term credit ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.
We believe our sources of liquidity, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet our contractual obligations, working capital, and planned capital expenditures, finance anticipated expansion and strategic initiatives, fund debt maturities, pay dividends, and execute purchases under our share repurchase program for the foreseeable future.
New Accounting Pronouncements
We do not expect any recently issued accounting pronouncements to have a material effect on our financial statements.
TARGET CORPORATION Q1 2026 Form 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS & SUPPLEMENTAL INFORMATION
FORWARD-LOOKING STATEMENTS & CONTROLS AND PROCEDURES
Index to Notes
Forward-Looking Statements
This report contains forward-looking statements, which are based on our current assumptions and expectations. These statements are typically accompanied by the words "anticipate," "believe," "could," "expect," "may," "might," "seek," "will," "would," or similar words. The principal forward-looking statements in this report include statements regarding: our future financial and operational performance, changes in the consumer landscape, evolution in tariffs and global trade policy, the availability, timing, and amount of any tariff refunds, the impacts of business transformation efforts, the adequacy of and costs associated with our sources of liquidity, the funding of debt maturities, the execution of our share repurchase program, our expected capital expenditures and new lease commitments, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, the expected return on plan assets, the expected outcome of, and adequacy of our reserves for, claims, litigation, and the resolution of tax matters, and changes in our assumptions and expectations.
All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors included in Part I, Item 1A, Risk Factors of our Form 10-K for the fiscal year ended January 31, 2026, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
Target Corporation published this content on May 29, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 29, 2026 at 19:57 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]