MINNEAPOLIS — Target's fourth-quarter profit topped Wall Street expectations, even as sales declined, and the company outlined a cautious yet optimistic outlook for 2026, sending shares higher in early trading.
For the quarter ended Feb. 1, Target reported adjusted earnings per share of $2.44, ahead of analyst estimates of $2.16 and in line with company expectations. GAAP EPS was $2.30, including 15 cents of non-recurring business transformation costs. A year earlier, the retailer posted GAAP and adjusted EPS of $2.41.
Fourth-quarter net sales declined 1.5% to $30.5 billion, while comparable sales fell 2.5%, reflecting a 3.9% drop in store comps partially offset by a 1.9% increase in digital sales. Operating income totaled $1.4 billion, down 5.9% from last year, though adjusted operating income of $1.5 billion was slightly above 2024 levels.
Despite the top-line pressure, profitability improved on several fronts. Gross margin expanded to 26.6% from 26.2% a year ago, benefiting from lower inventory shrink, reduced supply chain and digital fulfillment costs, and growth in advertising and other revenues. Those gains were partially offset by higher product and import costs.
CEO Michael Fiddelke said the company is positioning itself for “profitable growth in 2026 and beyond,” citing a healthy sales increase in February as an early sign of momentum.
Growth in Essentials and Digital
Target reported net sales growth in Food & Beverage, Beauty and Toys, with stronger trends in Essentials and Home compared with the third quarter. Sales and traffic accelerated in the final two months of the quarter.
Non-merchandise revenue was a bright spot, rising more than 25%. Membership revenue more than doubled year over year, Roundel advertising posted double-digit growth, and marketplace sales climbed more than 30%. Same-day delivery powered by Target Circle 360 grew more than 30%.
For the full year, net sales declined 1.7% to $104.8 billion, reflecting a 2.6% drop in comparable sales partially offset by new stores and non-merchandise growth. Full-year GAAP EPS was $8.13, compared with $8.86 in 2024. Adjusted EPS was $7.57.
Full-year operating income fell 8.1% to $5.1 billion, and return on invested capital declined to 13.8% from 15.4%.
2026 Outlook
Target expects net sales growth of about 2% in 2026, driven by a small increase in comparable sales and more than one percentage point of growth from new stores and non-merchandise revenue. The company anticipates sales growth in every quarter.
It projects a 20-basis-point improvement in adjusted operating margin from 2025’s 4.6% rate and full-year GAAP and adjusted EPS of $7.50 to $8.50. First-quarter EPS is expected to be flat to slightly up from last year, with stronger growth in the back half of the year.
Target paid $516 million in dividends during the quarter and ended the year with $8.3 billion remaining under its share repurchase authorization, though it did not repurchase shares in Q4.
After a challenging 2025 marked by declining sales and margin pressure, investors appeared encouraged by the company’s profitability gains and its confidence in returning to steady growth in the year ahead.
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