Target has spent two years as retail's problem child — falling sales, culture-war boycotts, shoppers defecting to Walmart and Amazon. So this report landed like a plot twist: revenue of $25.4 billion, up 6.7%, smashing expectations. Earnings of $1.71 per share against the $1.46 analysts expected — a 17% beat. More customers walked through the doors, every single merchandise category grew, and the company raised its full-year outlook. And then, in the most 2026 move imaginable, the stock fell about 5% anyway.
Here's what happened.
The Numbers: The Comeback Quarter
- Revenue: $25.44 billion, up 6.7% — beat the $24.66 billion expected
- GAAP and Adjusted EPS: $1.71 vs $1.46 expected — a 17% beat
- Comparable sales: up 5.6% — a sharp reversal from a 3.8% decline a year ago
- Traffic: up 4.4% — more actual visits, not just bigger baskets
- Digital sales: up 8.9%, with same-day delivery up more than 27%
- Non-merchandise revenue (ads, membership, marketplace): up nearly 25%
- Gross margin: 29.0%, up from 28.2%
- Full-year outlook: raised — sales growth now expected around 4%
- Stock reaction: down roughly 5% pre-market
Target's fiscal Q1 2026 covers February through early May 2026. The single most important number here is traffic up 4.4%. Revenue can be inflated by price increases; traffic can't. More people physically and digitally choosing Target — after a year of choosing not to — is the purest evidence a retail turnaround is real. And it grew in all six merchandise categories, meaning this wasn't one hot product carrying the store.
One Confusing Detail: EPS Both Fell 24% and Rose 32%
You may see headlines saying Target's earnings dropped 24%. They're technically right. Last year's quarter included $593 million of one-off gains from a legal settlement, which inflated the year-ago GAAP figure to $2.27. Strip those one-offs out and last year's true operating result was $1.30 — making this quarter's $1.71 a 32% increase in the earnings that come from actually running the business.
This is exactly why "adjusted" numbers exist. GAAP is the strict legal accounting, which includes everything — even windfalls like winning a lawsuit. Adjusted figures strip out one-offs so you can compare the underlying business year to year. Neither is a lie; they answer different questions. "How much money did Target make?" — GAAP. "Is the business getting better or worse?" — adjusted. The business got 32% better.
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Get the free extensionThe Quiet Empire: Ads, Memberships, and the Marketplace
The fastest-growing part of Target isn't on any shelf. Non-merchandise revenue — the Roundel advertising business, Target Circle 360 paid memberships, and the Target Plus third-party marketplace — grew nearly 25%.
This matters more than its size suggests, because this revenue carries far higher margins than selling groceries and t-shirts. It's the same playbook Amazon and Walmart run: use the retail traffic to build an advertising and membership business that does the real profit work. Gross margin improving to 29.0% partly reflects this mix shift.
When a brand pays Target to promote its products in the app, Target collects revenue with almost no costs attached — no inventory, no shipping, no shrink. A dollar of advertising revenue can be worth several dollars of merchandise revenue in profit terms. The retailers winning this decade are the ones turning their stores into media companies, and this quarter says Target's version is working.
So Why Did the Stock Fall?
Because expenses grew too. Operating costs (the SG&A line — wages, marketing, stores) rose enough to keep the operating margin thinner than investors wanted at 4.5%, and the market worried the sales recovery is being partly bought with spending that will be hard to dial back. New CEO Michael Fiddelke — promoted from CFO in February — is deliberately investing in stores, inventory, and experience to win shoppers back, and called the results an encouraging start.
The market's reaction says: we believe the sales, now show us the profits.
"SG&A" is selling, general and administrative expense — everything it costs to run the company that isn't the product itself. A turnaround usually spends before it earns: better staffing, sharper marketing, remodels. Investors accept that, but they watch the operating margin (profit as a share of sales) like hawks for proof the spending pays off. Strong sales + soft margin = "great, but expensive" — and the stock priced exactly that.
What's Coming Next
Target raised its full-year sales growth outlook to around 4% and is targeting a better operating margin than last year, with EPS guidance of $7.50–$8.50 intact and Q1 landing near the top of the trajectory. The strategy is continuity: more new products (nearly 1,500 added this quarter), faster delivery, and growing the ads-and-membership engine.
Raising guidance one quarter into a new CEO's tenure is a confident move — it stakes his credibility on the recovery continuing. The cautious play would have been keeping forecasts low and beating them later. Watch the next two quarters: if traffic keeps growing while margins stabilise, this was the bottom of Target's slump.
The Bottom Line
↑ Why This Matters (Bull Case)
This is what an inflection looks like: traffic up 4.4% after years of declines, all six categories growing, a 17% earnings beat, raised guidance, and a high-margin ads/membership business compounding at 25%. The new CEO's strategy showed results in his first full quarter. Gross margins expanded even amid tariff pressure on imports. If the recovery holds, Target is a beloved brand early in a turnaround — historically the most rewarding moment to own a retailer.
↓ Why This Might Worry You (Bear Case)
The recovery is being purchased: rising SG&A kept operating margin at a thin 4.5%, and the market's 5% slap on a huge beat shows how sceptical investors remain. One good quarter doesn't erase two bad years, the comparison was against a dreadful period, and Walmart and Amazon aren't standing still — both are growing faster in groceries and digital. Tariffs continue to pressure import costs. And if the spending stays elevated while traffic gains fade, Target ends up with the costs of a turnaround and the growth of a mature retailer.
The question is whether Target just proved the turnaround is real — or proved how much it costs to rent back customers who left.
References
- Target Corporation — Q1 2026 Earnings Press Release / SEC Form 8-K (May 20, 2026)
- U.S. Securities and Exchange Commission — Target Form 10-Q, Q1 2026 (May 2026)
- Investing.com — Target Q1 2026 Beats Expectations With Strong Sales Growth (May 20, 2026)
Ticker: TGT (NYSE) · Reported: May 20, 2026
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