Investors have piled back into Target (TGT) this year, betting that new CEO Michael Fiddelke can steer the retail giant toward a turnaround. That optimistic outlook has already propelled the stock up 59% year-to-date. However, this thesis is about to face its biggest challenge when the company releases its second-quarter earnings later this week. Even if the retailer meets expectations and raises its full-year profit guidance as Wall Street anticipates, that alone may not be enough to keep the rally going.
Deutsche Bank analyst Christina Karte noted that market expectations for Target's Q2 report are already elevated, but the more critical question is whether improvements in store operations and merchandising can convince investors of sustainable growth for fiscal 2027 and beyond. Analysts currently project Target to post a 2.3% increase in same-store sales for the quarter, with earnings per share of $2.29. In the same period last year, same-store sales declined 1.5% and EPS came in at $2.05, weighed down by a series of merchandise execution missteps.
Since the start of fiscal 2026, Target has moved quickly to correct its assortment issues. Jefferies analyst Corey Tarlowe highlighted that the company has expanded its health and beauty categories with 60 new brands, adding 3,000 beauty products, refreshed 75% of its home decor accessories, accelerated food and beverage innovation, and made new items more than 50% of its back-to-school assortment. Tarlowe described this as the largest product overhaul in years, one that is already driving a rebound in store traffic. The longtime bull on the stock believes the market may be underestimating the sustained traffic dividend from this "merchandise system rebuild" at the big-box retailer.
Target's first-quarter results already hinted at that underestimated potential: EPS beat estimates by $0.28, and sales grew across all categories led by beauty, hardlines, and food, with store traffic improving simultaneously. The company even raised its full-year sales outlook, projecting sales growth in every quarter of the fiscal year. Karte added that with the stock already up 59% this year, much of the turnaround benefit is priced in. The shares now increasingly depend on whether the market believes Target can achieve more than $10 in EPS in fiscal 2027. So the most important takeaway this quarter is whether the recent traffic and sales momentum can be sustained.
In our view, we remain on the sidelines until there is more evidence that positive same-store sales trends are driven by durable market share gains and improved competitive positioning, rather than just easy comparisons from a weak base.
Comments