(Corrects spelling of Fiddelke in paragraph 7)
By Juveria Tabassum and Nicholas P. Brown
Aug 19 (Reuters) - Target raised its annual sales forecast for a second time this year as efforts to cut prices and freshen merchandise yielded results, while its quarterly profit received a nearly $1 billion boost from tariff refunds.
It was the third straight strong quarter for Target, and the results suggest the turnaround plan of new CEO Michael Fiddelke is taking root ahead of the all-important holiday shopping
season, even as high fuel prices pressure household budgets.
Quarterly comparable sales grew 3.8% and beat estimates of 2.5% growth in its earnings report, which Morningstar analyst Brett Husslein had flagged as a key test on whether Target can consistently execute on price, product mix and store experience.
The sales growth was powered by a 3.6% rise in traffic and an 8.7% jump in digital comparable sales, as shoppers opted for same-day delivery. However, ticket size was about flat.
The turnaround "will take some time", Fiddelke said on a call with analysts, noting some categories such as apparel and home grew only a bit. But "where we're making the beginnings of change, we're seeing the green shoots of a good guest response."
Target's shares reversed premarket losses to gain 5% as executives touted a strong start to the back-to-school shopping season. The stock has surged 56% this year, outpacing the S&P 500 Consumer Staples index.
"Let's see if that consumer remains resilient going forward and loyal to the brand. Right now, Michael Fiddelke is hitting it on all cylinders," said Jay Woods, chief market strategist at Freedom Capital Markets.
Fiddelke has focused on keeping shelves well-stocked and adding more products in key categories such as baby care and health and wellness.
Over the past year, Target cut prices on more than 10,000 items. The company said about 95% of its school supplies were priced below last year's rates and in-stock levels were better.
Target said in March it would invest an extra $2 billion — on top of a previously announced $4 billion — to fix the merchandising problems that had turned shoppers away.
Building on an effort to draw in young families, Target noted double-digit growth in its hardline business, known as Fun101, naming Legos a leading product.
It also added more space for fresh produce and snacks, as it tries to be a destination for grocery with consumers focusing on essentials.
As of the end of 2025, Target ranked fourth in the U.S. in grocery market share, with about 5% of the market, behind Walmart, Costco and Kroger,, according to data from Euromonitor International, obtained by Reuters.
"The stock had a high bar given the year-to-date run and buy side had high expectations," said Jacob Aiken-Phillips, analyst at Melius Research.
LITTLE ROOM FOR ERROR
Target's second-quarter gross margin rate expanded about 100 basis points to 33.7%.
Fiddelke hinted at more investments in the coming months, including launching beauty studios in more than 600 stores and advancing its use of technology in areas such as inventory management.
Whereas low prices and high-margin ad business help Walmart withstand macro challenges, Target's margins are more dependent on retail sales, and factors that push shoppers away - be they social, macroeconomic or business-driven - can quickly change its fortunes, Husslein said.
That magnifies the importance of execution at a time when consumers are tightening their belts, he said — especially on prices, which must be low enough to compel shoppers without denting margins.
"If they are not on the ball in every way, they risk losing customer wallet share," Husslein said.
TARIFF REFUNDS BOOST INCOME
Excluding items and a tariff benefit of $1.65 per share, Target's quarterly profit of $2.46 beat estimates of $2.33, according to data compiled by LSEG.
The refund accounts for a big share of what it applied for and it expects more to come, executives said.
On an adjusted basis, Target raised the mid-point of its annual earnings per share forecast by 75 cents. In May, it had forecast near the high end of $7.50 to $8.50.
Lee said the company is trying its best to invest in price, while stopping short of saying tariff refund dollars would be used to lower prices.
Target was still looking to reduce a hit from tariffs through changing country of origin, working with vendors and adjusting assortment, Lee added.
The retailer expects year-over-year net sales growth of around 5%, compared with its prior target of around 4%.
(Reporting by Juveria Tabassum in Bengaluru and Nicholas P. Brown in New York; Editing by Matthew Lewis and Arun Koyyur)
