Target Corporation (NYSE: TGT) delivered a strong quarter even before a massive tariff refund windfall. GAAP and Adjusted EPS of $4.11 more than doubled from $2.05 a year ago and crushed the $2.29 consensus estimate. Revenue of $26.5B grew 5.3% and beat the $26.07B estimate.
But the headline number includes a $1.65 per-share benefit from $994M in tariff refunds. Strip that out, and EPS still grew 20% year-over-year on a 5.3% revenue gain. That is the real underlying story: the core business is accelerating.
Comparable sales rose 3.8%, driven entirely by a 3.6% increase in traffic. Average transaction size was essentially flat, up just 0.2%. That mix is healthy: people are coming to Target more often, not just spending more when they arrive. Digital comparable sales surged 8.7%, with same-day delivery growing more than 25%. All six core merchandise categories grew, led by double-digit growth in Fun 101 (hardlines) and high single-digit growth in Food & Beverage and Beauty. Non-merchandise revenue, which includes advertising from Roundel, Target Circle 360 membership fees, and the Target+ marketplace, grew over 20% and is becoming a meaningful profit driver.
Gross margin expanded to 33.7% from 29.0% a year ago. Tariff refunds contributed 3.7 percentage points of that expansion. Excluding the refunds, gross margin still improved about 100 basis points, reflecting lower markdowns and purchase order cancellation costs versus last year, plus continued growth in high-margin non-merchandise revenue. The SG&A expense rate ticked up to 21.6% from 21.3%, driven by higher compensation costs, additional hours for field teams, and planned capital project spending. The company used strong topline growth to partially offset those increases, but the SG&A line bears watching if revenue growth slows.
Management raised full-year guidance decisively. Net sales growth is now expected around 5%, up from 4%. EPS guidance was lifted to $9.90–$10.90 from $7.50–$8.50, a $1.90 increase at the midpoint. That includes the $1.65 second-quarter tariff refund benefit. Excluding refunds, the midpoint of the new range implies a $0.75 increase versus prior guidance. The company also initiated an operating income margin rate target of around 6% for the full year, which includes roughly 90 basis points of benefit from the Q2 refunds. Excluding refunds, operating margin is expected to be about 50 basis points higher than last year's adjusted 4.6%.
Capital allocation was measured. Capital expenditures rose 27% to $1.4B, driven by store remodels and new stores. The company paid $518M in dividends, a 1.8% per-share increase. It did not repurchase any stock during the quarter, leaving $8.3B of remaining authorization. After-tax return on invested capital improved to 15.4% from 14.3% a year ago, though tariff refunds contributed 2.4 percentage points to that figure.
The guidance raise is the strongest signal here. Management could have held guidance after a beat that included a large one-time benefit, but instead chose to raise both revenue and EPS ranges. That suggests confidence that the underlying momentum in traffic, digital growth, and non-merchandise revenue is durable. The key question for the second half is whether gross margin can hold ex-refunds as markdown comparisons normalize and compensation costs continue to rise. For now, Target has delivered a quarter that looks sustainable beyond the tariff tailwind.