Target raises 2026 margin outlook by 50 basis points

Target Corporation raised its operating profitability expectations for fiscal 2026. The retailer anticipates its full-year operating income margin rate, excluding tariff refunds, to land around 50 basis points above the 2025 adjusted operating margin rate of 4.6%. The company had previously guided to an increase of more than 20 basis points above the year-ago level.

Including an approximate 90-basis-point benefit from second-quarter tariff refunds, Target expects its fiscal 2026 operating margin rate to settle near 6%. During the second quarter, Target booked $994 million in pretax tariff refunds, which lifted its reported quarterly operating margin rate to 9.6% from 5.2% a year earlier. Tariff refunds contributed 3.7 percentage points to that figure, while the underlying operating margin rate rose by approximately 70 basis points year over year.

Gross margin performance also strengthened. Excluding tariff refunds, the second-quarter gross margin rate expanded by roughly 100 basis points from 29% a year earlier. Target attributed the gain to lower markdowns, reduced purchase-order cancellation costs, and growth in advertising alongside other non-merchandise revenues. Meanwhile, the SG&A expense rate rose about 30 basis points to 21.6% due to higher compensation costs and planned spending on capital projects.

Over the past three months, Target shares have gained 17.6%, compared with a 7.6% decline for the broader industry. Over the same period, shares of Dollar General gained 6.4%, while Costco shares dropped 6.2%. In the past 30 days, the Zacks Consensus Estimate for Target earnings per share rose by 16 cents to $10.43 for the current fiscal year, and by 9 cents to $9.38 for the next fiscal year.