Target's Q2 EPS Doubles to $4.11, but $994 Million of Tariff Refunds Supplied $1.65 of It

by Henry Nakamura · August 19, 2026

Earnings Reporter, Earnings Dispatch

Target Corporation reported second quarter 2026 results before the opening bell on Wednesday, August 19, and the headline number carried an unusually large one-time component. Diluted earnings per share for the three months ended August 1, 2026 came in at $4.11, just over double the $2.05 the retailer earned in the quarter ended August 2, 2025. Of that $4.11, the company itself attributes $1.65 to refunds of tariffs collected under the International Emergency Economic Powers Act.

The refund is disclosed plainly in the release. Target states that during the three and six months ended August 1, 2026 it recognized $994 million related to IEEPA tariff refunds received during the second quarter of 2026 as a reduction of cost of sales, and that those gains "contributed $752 million to net earnings and $1.65 to both GAAP and Adjusted EPS." The per-share figure is the company's own, not a desk estimate, and it reconciles: $752 million of after-tax benefit spread across the 456.6 million diluted shares reported for the quarter comes to $1.65. The accounting treatment is visible in the income statement, where cost of sales fell to $17,603 million from $17,903 million a year earlier even as net sales rose. Gross margin rate landed at 33.7 percent of sales against 29.0 percent in the year-ago quarter, and Target attributes 3.7 percentage points of that to the refunds, leaving roughly 100 basis points of expansion on the company's own reckoning once they are stripped out.

Both the GAAP and the adjusted figures are the same number. Target's reconciliation shows no adjustments in the quarter, so $4.11 is simultaneously the GAAP diluted EPS and the adjusted diluted EPS, and the same was true of the $2.05 a year earlier. The refunds are not treated as an adjusting item; they sit inside both measures. For the six months, GAAP and adjusted diluted EPS were each $5.83. The year-ago six-month figures were not equal: $4.32 on a GAAP basis against $3.35 adjusted, so the half-year growth rates differ sharply depending on which basis is used.

On the top line, net sales of $26,539 million were 5.3 percent above the $25,211 million recorded in the second quarter of 2025. Comparable sales rose 3.8 percent, split between comparable store sales up 2.7 percent and comparable digital sales up 8.7 percent. Transaction traffic increased 3.6 percent while the average transaction amount rose just 0.2 percent, meaning nearly all of the comparable growth came from more visits rather than larger baskets.

Below the gross margin line the picture is less flattering. SG&A expense rose to $5,725 million from $5,359 million, taking the SG&A rate to 21.6 percent of sales from 21.3 percent. Depreciation and amortization was $651 million against $632 million. Operating income of $2,560 million compared with $1,317 million, an operating income margin rate of 9.6 percent versus 5.2 percent. Net interest expense declined to $98 million from $116 million, and the provision for income taxes was $582 million on pre-tax earnings of $2,459 million, against $283 million on $1,218 million a year ago. Net earnings were $1,877 million versus $935 million.

Chief executive Michael Fiddelke framed the quarter around momentum rather than the refund. In the release he said: "Second quarter results build on the encouraging momentum we saw in the first quarter, giving us increasing confidence that our strategy is resonating with our guests and strengthening our leadership position in style, design, and value. Over the past year, we've reduced prices on more than 10,000 frequently purchased items as part of our commitment to delivering outstanding value every day, while continuing to invest in newness, convenience, and an elevated shopping experience. While there's still meaningful work ahead, we're encouraged by the progress we're making and remain focused on executing with discipline, staying agile in a dynamic operating environment, and investing in our team and capabilities to drive sustainable, profitable growth over the long term."

The full-year guidance was raised, and it too is built around the refund. Target now expects full-year net sales growth in a range around 5 percent, one percentage point higher than its prior range. It expects a full-year 2026 operating income margin rate in a range around 6 percent, including approximately 90 basis points of benefit from the second quarter tariff refunds; excluding those refunds, the company says the rate should land around 50 basis points above last year's adjusted operating income margin rate of 4.6 percent.

The earnings guidance range is $9.90 to $10.90 on both a GAAP and an adjusted basis, which the company says includes the roughly $1.65 of second quarter tariff refund benefit. Target notes that excluding the refunds, the midpoint of the new range reflects a $0.75 increase versus its prior guidance of $7.50 to $8.50. The company also says its guidance excludes any potential future tariff refunds, a point that matters because further claims remain outstanding.

On the accompanying call, chief financial officer Jim Lee said the second quarter recovery represents the significant majority of IEEPA refunds the company has applied for to date, with some additional amounts still expected, according to coverage of the call published by Yahoo Finance. That summary also reports Lee pointing to adjusted EPS excluding tariff refunds, which he put at up 20 percent in the quarter and 24 percent year to date, as the proper measure of underlying performance. The release carries the same quarterly figure, stating that GAAP and adjusted EPS increased 20 percent year over year excluding tariff refunds — which is what is left when the company's $1.65 of refund benefit is taken out of the $4.11 and set against the prior-year $2.05.

Capital deployment reflected an investment year rather than a return-of-capital one. Second quarter capital expenditures were $1.4 billion, up 27 percent year over year, with year-to-date capex of $2,404 million against $1,864 million a year ago. Target paid $518 million of dividends in the quarter, on a dividend per share of $1.16 versus $1.14, a 1.8 percent increase, and repurchased no shares, leaving approximately $8.3 billion of capacity under its existing authorization. Diluted weighted average shares were 456.6 million versus 455.6 million, so there was no buyback tailwind to the per-share figure. Trailing twelve-month after-tax return on invested capital was 15.4 percent against 14.3 percent. Inventory finished the quarter at $13,249 million, 2.9 percent above the $12,881 million carried a year earlier and up from $12,304 million at the January 31, 2026 year end, and Target ended the period with 2,019 stores.

Investing.com, reporting on the release, put Wall Street's forecast at $2.33 per share on revenue of $26.13 billion, though that account does not state whether the earnings figure was compiled on a GAAP or an adjusted basis and does not name the estimate provider. Because the basis of the consensus is not stated by the source, this report does not characterize the result as a beat or a miss; readers should note that a $2.33 figure sits close to the $2.46 that remains once the company's own $1.65 of refund benefit is removed from the $4.11 print. The same account, published at 9:18 a.m. Eastern, recorded Target shares at $149.99 in premarket trading, down 1.64 percent from the prior close of $152.48.

The remaining question for the second half is arithmetic. The refund was recognized entirely in the second quarter and the guidance explicitly excludes any additional recoveries, so the year-over-year comparisons Target reports for the third and fourth quarters will not carry the same benefit. Management's own framing — that the underlying, refund-free improvement is worth about $0.75 at the midpoint versus prior guidance — is the number that describes the operating business.