Target (TGT) Rallied in 2026. Can its Turnaround Start Producing Margin Growth?

Target Corporation (NYSE: TGT ) enters its fiscal second-quarter report with its shares up significantly in 2026. Consensus estimates call for revenue to increase 3.5% to $26.09 billion, adjusted earnings to rise 14% to $2.34 per share, and comparable sales to grow 2.4%. That follows a first quarter in which net sales increased 6.7%, comparable sales rose 5.6%, and traffic grew 4.4%. With the stock's recovery already well advanced, another sales beat may not be enough.

The central test is profitability. Target Corporation (NYSE:TGT) improved its adjusted operating margin to 4.5% from 3.7%, but the adjusted SG&A expense rate increased to 21.9% from 21.7%. Gross margin expanded 80 basis points to 29%. Management expects the full-year operating margin to exceed the 2025 adjusted rate of 4.6% by more than 20 basis points.

BULL CASE: TRAFFIC GROWTH IS BROADENING THE RECOVERY

Target Corporation (NYSE:TGT) reported higher sales across all six core merchandise categories during the first quarter. Digital comparable sales grew 8.9%, led by more than 27% growth in same-day delivery. Non-merchandise sales increased nearly 25% as Roundel advertising, Target Circle 360 membership revenue and the Target+ marketplace expanded.

That breadth matters because Target Corporation (NYSE:TGT) is not relying on one category or sales channel to restore growth. Higher traffic, positive average transaction growth, and gains across stores and digital channels indicate that the retailer is becoming more relevant to shoppers.

Target Corporation (NYSE:TGT) also showed early margin progress. Supply-chain productivity, lower markdowns, and growth in advertising and other non-merchandise revenue helped expand gross margin despite higher product costs. Sustained traffic growth would give the retailer a larger sales base over which to spread its store and fulfillment expenses.

BEAR CASE: INVESTMENT SPENDING IS ABSORBING THE LEVERAGE

The turnaround remains expensive. Target Corporation (NYSE:TGT) plans approximately $5 billion of capital expenditures and $1 billion of incremental operating investment during 2026. The program includes more than 30 new stores, over 130 remodels, additional payroll and training, increased marketing, and investments in technology and supply chains.

Target Corporation (NYSE:TGT) increased adjusted SG&A expenses by approximately 7.3% in the first quarter, slightly faster than net sales. Traffic, product availability, and guest-satisfaction measures improved, but the adjusted SG&A expense rate still increased by 20 basis points. The results therefore showed better execution without clear expense leverage.