Shares of Target (NYSE | TGT Price Prediction) jumped more than 5% Wednesday morning, trading around $160 after closing Tuesday at $152.48. The move followed a strong second-quarter report, a major increase in Target’s full-year outlook, and nearly $1 billion in tariff refunds that gave reported profit an unusually large boost.
That last part matters. Target’s business showed real improvement in the quarter, including higher traffic, stronger comparable sales, and fast digital growth. But investors looking at the new earnings guidance should separate the improvement coming from Target’s stores and online business from the benefit that came from a one-time tariff refund. For long-term shareholders, including retirees who may own Target for income, recurring earnings matter a lot more than one unusually strong quarter.
Target’s Quarter Was Strong Even Without the Refund
Target’s second-quarter net sales rose 5.3% from a year earlier to $26.54 billion, while comparable sales increased 3.8% after falling 1.9% in the same quarter last year. Traffic was up 3.6%, while the average transaction amount increased just 0.2%. That is an encouraging combination because most of the comparable-sales gain came from more transactions rather than shoppers simply paying more. Store comparable sales increased 2.7%, while digital comparable sales jumped 8.7%. Same-day delivery grew more than 25%, and sales increased across all six of Target’s core merchandise categories.
The eye-catching number was earnings. Diluted EPS rose to $4.11 from $2.05 a year earlier, but $1.65 per share came from $994 million in pretax tariff-refund benefits. Importantly, Target says EPS still increased 20% year over year when those refunds are excluded. Gross margin reached 33.7%, with 3.7 percentage points of that margin coming from the refunds. Without them, gross margin still expanded by about one percentage point from last year. That makes this more than a refund story, even if the refund made the headline numbers look much larger.
The Guidance Raise Looks Huge, but There Is More to It
Target now expects full-year 2026 net sales growth around 5%, one percentage point above its previous outlook. It also raised its GAAP and adjusted EPS guidance to $9.90 to $10.90, up from the prior $7.50 to $8.50 range. That sounds like an enormous upgrade, but the new guidance includes the roughly $1.65-per-share benefit already recorded from second-quarter tariff refunds. Target is not assuming additional tariff refunds in that forecast.
Strip out the tariff benefit and the picture becomes less dramatic, although still positive. Target says the midpoint of its new EPS range, excluding the refund, is $0.75 higher than the midpoint of its previous guidance. The company also expects a full-year operating margin around 6%, including about 90 basis points, or 0.9 percentage point, from the refund. Excluding that benefit, Target expects its operating margin to improve by roughly 50 basis points from last year’s adjusted 4.6%. That underlying improvement is the number long-term investors should watch because it tells us more about what the business may earn after the unusual refund disappears.
Target’s Turnaround Is Showing Up in More Than Earnings
There are signs that Target’s improvement goes deeper than the tariff refund. The company says it has lowered prices on more than 10,000 frequently purchased products during the past year while continuing to invest in merchandise, convenience, and its stores. Capital spending reached $1.4 billion during the quarter, 27% above a year ago, primarily because Target is spending more on remodels and new stores. That does not guarantee the turnaround continues, but stronger traffic alongside higher store and digital comparable sales gives management more to work with than a simple cost-cutting story would.
The broader retail market is also worth keeping in perspective. The SPDR S&P Retail ETF (NYSEARCA) tracks a retail index that uses a modified equal-weight approach, so Target does not dominate the fund simply because it is a large company. As of July 31, the underlying index held 75 companies, and its largest individual position was only about 2%. That makes XRT useful for seeing how retailers broadly are performing, but Target’s company-specific recovery can move very differently from the ETF. Investors buying XRT should also remember that it is concentrated entirely in retail businesses, leaving it exposed to shifts in consumer spending and the retail economy.
What Long-Term and Retirement Investors Should Watch Now
The question from here is not whether $4.11 in quarterly EPS looked impressive. It did. The question is what Target can produce without another $994 million refund. Comparable sales, customer traffic, digital growth, and operating margin will give investors a much cleaner picture over the next several quarters. Management itself is not treating two stronger quarters as the finish line. CEO Michael Fiddelke said Target still has meaningful work ahead and is focused on building sustainable, profitable growth over the long term.
That distinction is particularly important for investors who rely on their portfolios for retirement income. Target raised its quarterly dividend by 1.8% in June, from $1.14 to $1.16 per share. Dividend investors should still judge the company’s ability to support and grow that payment primarily on recurring earnings, cash flow, and the health of the underlying business, not earnings temporarily boosted by tariff refunds. If traffic and margins continue improving after the one-time benefit rolls off, the case for Target becomes considerably stronger. If they do not, investors may discover that part of Wednesday’s excitement was tied to money Target cannot count on receiving again.