Key Points:
- Target reported $25.44 billion in total revenue and an earnings per share of $1.71, easily beating Wall Street expectations.
- Same-store sales jumped 5.6%, marking the first time the company saw positive growth in this critical metric in five quarters.
- Despite the strong earnings report, Target shares dropped nearly 4% as investors worried about the rest of the year.
- The retailer plans to spend roughly $5 billion this year to remodel stores and improve its massive supply chain network.
Target delivered a surprisingly strong financial report on Wednesday, beating Wall Street expectations across the board. The massive retailer finally broke a long losing streak and showed positive signs that its turnaround plan might actually work. However, the good news failed to impress the stock market. Target shares dropped nearly 4% on Wednesday afternoon as investors worried that the company might struggle to maintain this momentum for the rest of the year.
The first-quarter numbers painted a very bright picture for the retailer. Target generated $25.44 billion in total revenue, easily surpassing the $24.64 billion analysts had originally expected. The company also posted earnings per share of $1.71, crushing the forecast of $1.46. Overall net sales grew by more than 6% compared to the same period last year. This revenue beat stands as the largest positive surprise the company has delivered since November 2021.
One of the most important metrics for any retail company finally turned positive this quarter. Target saw its same-store sales jump by 5.6%. This marks the first time in five consecutive quarters that the retailer recorded positive same-store sales growth. The company achieved this milestone by driving more people into its physical buildings and its mobile app. Overall, customer traffic across physical stores and digital platforms grew 4.4% compared to the first quarter of last year.
Online shopping played a massive role in this recent success. Digital comparable sales increased by a healthy 8.9%. Target executives attributed this digital growth directly to the success of its same-day delivery service and its paid membership program, Target Circle 360. Furthermore, the company saw a massive 25% spike in its nonmerchandise sales. This specific category includes membership revenue and fees generated from the Target+ third-party online marketplace. Like Amazon and Walmart, Target aggressively pushes these secondary business units to boost total profits and offer shoppers more convenience.
Shoppers opened their wallets across every major department. The company reported increased sales in all six of its core merchandising categories. Target saw particularly strong demand for health and wellness products, toys, and baby items. Chief Executive Officer Michael Fiddelke noted that the baby and kids category accelerated significantly in the second half of the quarter. Meanwhile, new product additions in the health and wellness section drove double-digit sales growth for that specific segment.
Even though shoppers face heavy economic pressure, they continue to spend money at Target. High gas prices and general economic uncertainty normally force people to pull back on discretionary spending. Yet, the retailer managed to convince shoppers to buy new items anyway. Fiddelke told reporters that the modern consumer remains incredibly resilient, even as they face a tricky mix of economic headwinds and tailwinds this year.
Target expects this positive momentum to continue. The company raised its financial outlook for the full year. Executives now predict overall net sales will grow by 4% compared to 2025, which represents a solid 2 percentage point jump from their previous forecast. Target also expects its full-year earnings per share to land near the high end of its previous $7.50 to $8.50 guidance range. Wall Street analysts currently expect annual earnings to hit $8.14 per share.
Despite the upgraded forecast, the leadership team wants to stay grounded. Fiddelke warned that the company still faces significant challenges and ongoing uncertainty in the broader economy. For the three months ending on May 2, Target recorded a net income of $781 million. This number actually represents a drop from the $1.04 billion the company earned during the same period last year. However, the company improved its profit margins. Target posted a 29% gross margin for the first quarter, beating the 28.7% Wall Street estimate.
The retailer plans to execute sweeping changes over the next few months to keep shoppers interested. Fiddelke told analysts that the company will make more changes to what it sells and how it sells it in 2026 than it has in an entire decade. Target wants to deliver consistent growth for decades to come, rather than just celebrating one good quarter.
To fund this massive transformation, the company will invest heavily. Chief Financial Officer Jim Lee announced that Target will allocate roughly $5 billion for capital expenditures this year. This budget represents a massive $1 billion increase from the previous fiscal year. The company will spend this cash to upgrade its supply chain network and modernize its physical stores. Target already opened seven new locations in the first quarter and currently has more than 100 store remodel projects in progress.
Looking ahead to the second quarter, Target outlined several big priorities. The retailer plans to launch its largest food and beverage transition in more than ten years. It will also roll out the new Target Beauty Studio experience across more than 600 stores nationwide. Finally, the merchandising team plans to completely overhaul nearly 75% of its decorative home accessories to offer fresh styles. Meanwhile, Lee noted that the financial team continues to navigate a dynamic tariff environment as it determines how new international trade policies will affect its future profit margins.
