Target said Wednesday that it pulled in a $994 million tariff refund after the U.S. Supreme Court ruled this year that the Trump administration had overstepped its authority when the tariffs were implemented, a windfall that helped lift net income to $1.87 billion for the three months ended Aug. 1.
Who Gets the Refund
The retailer’s comeback quarter came with a very specific kind of relief: money back from a tariff fight decided at the top of the legal hierarchy. Target said the refund helped its earnings for the period, and the company reported net income of $1.87 billion, or $4.11 per share, for the three months ended Aug. 1. That beat the $2.34 per share Wall Street had expected, according to FactSet, and it also topped last year’s $935 million, or $2.05 per share.
The refund didn’t arrive in a vacuum. It came after the Supreme Court ruled this year that the Trump administration had overstepped its authority when the tariffs were implemented. Ordinary shoppers, meanwhile, keep living with the price pressure that corporate executives and economists keep tracking from above. Target said it continues to invest in lowering prices, and Chief Financial Officer Jim Lee said the company reduced the prices of more than 10,000 items over the past year. “There’s more to come even as we’re facing headwinds overall,” Lee said.
What the Store Wants
Target said comparable sales rose 3.8% in the second quarter, marking its second straight quarter of gains. Comparable sales include stores and digital channels operating for at least 12 months. The company also said its annual profit and sales outlook improved after solid performance in the first half of the year. Net sales rose 5.3% to $26.54 billion.
Michael Fiddelke, who became chief executive in February, called the quarter “an important step forward in the plan we laid out earlier this year to open a new chapter of growth for Target.” He also said, “We’re encouraged by the progress made so far, and we’re also clear-eyed about the important work still ahead.” In March, Fiddelke unveiled a $6 billion plan to reverse Target’s sales slump and restore its reputation as a place for affordable yet stylish apparel and home goods.
That plan is showing up in the aisles. Target said more than half of its back-to-school merchandise is new. The company pointed to a limited-time collection of teen and tween clothes, school supplies and accessories in pastel colors and floral prints from the women’s lifestyle brand LoveShack Fancy. It also collaborated with Hollister on a dorm decor collection. Target recruited fashion designer and TV personality Isaac Mizrahi this summer for the newly created role of creative director at large. Mizrahi is meant to mentor Target designers, advise on product design and innovation, and forge new partnerships.
Who Pays for the Turnaround
Target said it is remodeling stores and improving staffing, with more than 100 full-scale remodels underway and a goal of reaching 130 this year. During the second quarter, comparable store sales increased 2.7%, while increased same-day deliveries pushed digital comparable sales up 8.7%. The company also said customer traffic rose, with more people going to its stores and shopping on its website from May through July.
The gains weren’t spread evenly across the business. Target said sales increased in all six of its main merchandising categories, led by double-digit growth in what it calls Fun 101, which includes consumer electronics, toys, trading cards, sports paraphernalia, books and gaming items. Beauty and food and beverage also stood out. But clothing and home goods hardly grew, and executives said the work to improve those areas is ongoing.
Target plans to roll out a new Target Beauty Studio concept next month in more than 600 locations. The new area will offer upscale beauty products and enhanced product expertise from staff, and it will partly replace shops with Ulta, which is ending its partnership with the retailer in August, the company said.
The company’s numbers landed against a rougher backdrop. Target is one of the first big retailers to report second-quarter financial results, which could give analysts and economists another read on whether ongoing price pressures from the conflict in Iran affected consumer behavior. The Commerce Department released a report Friday showing weak retail sales in July, and the University of Michigan’s consumer sentiment index, also released Friday, showed greater pessimism about the economy this month, likely driven by stubbornly high prices.
Target now expects sales to increase 5%, up from its earlier prediction for a 4% gain. It expects earnings per share for the full year to be in the range of $9.90 to $10.90. Analysts expect $8.52 per share for the year, according to FactSet. In May, Target reiterated its guidance from March for earnings per share to be near the high end of $7.50 to $8.50.