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Target (TGT +5%) is trading higher after reporting a strong Q2 (Jul) EPS beat, supported in part by a sizable IEEPA tariff refund, while revenue and traffic trends also showed continued improvement. Revenue increased 5.3% yr/yr to $26.54 bln, marking Target's second consecutive quarter of yr/yr growth after five straight quarters of declines. Same-store sales increased +3.8%, driven by a +3.6% increase in traffic, while all six core merchandising categories grew yr/yr. Target raised FY26 adjusted EPS guidance to $9.90-10.90 and revenue growth guidance to +5% from +4%, although the Q2 EPS upside was partly driven by an approximately $1.65/share benefit from the tariff refund.

• Tariff refund: Target recorded the approximately $1.65/share IEEPA tariff refund as a reduction to Cost of Sales rather than revenue, providing a significant boost to gross margin, operating margin, and EPS. Adjusted operating margin improved to 9.6% from 5.2% a year ago, with 3.7 percentage points of the Q2 margin rate attributable to the tariff refund.
• Traffic and comps: Same-store sales increased +3.8%, with comp traffic up +3.6%. While the comp moderated from Q1's +5.6%, the second consecutive quarter of positive sales growth and broad-based traffic improvement suggest Target's underlying business is stabilizing after a prolonged period of declines. Management also noted that merchandising gains were partially offset by continued investments in value, including price reductions.
• Merchandising reset: Target is executing its largest strategic transition in more than a decade under new CEO Michael Fiddelke, with nearly half of its center store grocery assortment being reset, newness accelerating nearly 50%, and nearly three quarters of decorative accessories in Home being replaced. Management said it is encouraged by the early progress, with all six core merchandising categories growing yr/yr in Q2.
• Guidance: Target raised FY26 revenue growth guidance to +5% from +4% and adjusted EPS guidance to $9.90-10.90. The EPS outlook incorporates the Q2 tariff refund benefit, making the underlying earnings improvement less dramatic than the headline beat suggests. Nevertheless, the combination of positive comps, improved margins excluding the refund, and higher revenue guidance provides evidence that the business is making progress.

Briefing.com Analyst Insight

Target delivered a much stronger Q2 than investors had reason to expect, with the key distinction being that the quarter was not solely a tariff-refund story. The approximately $1.65/share refund was clearly a major contributor to the EPS upside. More importantly, the company's merchandising reset appears to be gaining traction, with broad-based category growth and particularly strong performance in Fun 101, Food & Beverage, and Beauty. The bigger question for investors now is whether Target can sustain its improved traffic and merchandising momentum after the tariff benefit rolls off. If the new assortment strategy continues to drive positive comps and margin improvement, today's results could represent an important step in rebuilding confidence in Target's turnaround.