Target Reports Q2 2025 Profit Decline, Maintains Full-Year Outlook

Target (TGT.US) reported second-quarter GAAP and Adjusted EPS of $2.05, a 20.2% decrease from $2.57 in Q2 2024. Net sales for the quarter were $25.2 billion, representing a 0.9% decrease compared to the prior year. Despite the decline, traffic and sales trends showed meaningful improvement compared with the first quarter, particularly in stores, and digital comparable sales grew 4.3%. The reported Adjusted EPS of $2.05 fell short of the analyst estimate of $2.09 for Q2 2025.

Sales Performance and Business Drivers

Second quarter net sales of $25.2 billion were 0.9% lower than last year, driven by a 1.2% decrease in merchandise sales. This was partially offset by a 14.2% increase in non-merchandise sales, with Roundel, membership, and marketplace revenues all growing double digits. Digital comparable sales saw a 4.3% growth, reflecting over 25% growth in same-day delivery powered by Target Circle 360 and continued growth in Drive Up.

All six core merchandising categories experienced comparable sales improvements compared with the first quarter, indicating a positive shift in consumer engagement. Despite these improvements, comparable sales for the quarter decreased by 1.9%, influenced by a 3.2% decline in comparable store sales.

Profitability and Expense Management

Second quarter operating income was $1.3 billion, down 19.4% from last year, resulting in an operating income margin rate of 5.2% compared to 6.4% in 2024. The gross margin rate decreased to 29.0% from 30.0% in 2024, primarily due to higher markdown rates, purchase order cancellation costs, and pressure from category mix, partially offset by lower inventory shrink and growth in advertising. SG&A expenses were 0.1% lower than last year, demonstrating disciplined cost management despite increased investments in store remodels and general cost increases.

Management Outlook

For fiscal 2025, Target is maintaining its expectation of a low-single digit decline in sales. The company anticipates GAAP EPS to be in the range of $8.00 to $10.00. Adjusted EPS, which excludes gains from litigation settlements in the first quarter, is projected to be approximately $7.00 to $9.00.