Target Corporation 2027 Q2 Earnings Call

Please go ahead, sir. Good morning, everyone, and thank you for joining us on our second quarter 2026 earnings conference call.

On the line with me today are Michael Fiddelke, Chief Executive Officer, Cara Sylvester, Chief Merchandising Officer, Lisa Roath, Chief Operating Officer, and Jim Lee, Chief Financial Officer. In a few moments, Michael, Cara, Lisa, and Jim will provide their insights on our second quarter performance and outlook for the rest of the year. Following their remarks, we will open the phone lines for a question-and-answer session. This morning, we are joined on this conference call by investors and others who will be listening to our comments via webcast. Following the call, Jim and I will be available to answer your follow-up questions.

Also, as a reminder, any forward-looking statements that we make this morning are subject to risks and uncertainties, including those described in this morning's earnings press release and in our most recently filed 10-K. Also, in today's earnings materials, we refer to non-GAAP financial measures, including adjusted earnings per share, adjusted operating income, and adjusted SG&A expenses. Reconciliations of all non-GAAP numbers to the most directly comparable GAAP number are included in this morning's press release, which is posted on our investor relations website. Finally, as many of you know, I am getting ready to retire after more than 26 years at Target, and today marks my final earnings call. Along with that news, I am really excited to let you know that Justin Madsen has accepted the role of Vice President, Investor Relations for the company.

Going forward, Justin will be kicking off these quarterly calls, beginning with our Q3 call in November. With that, I will turn it over to Michael to kick things off.

Michael? Thanks, John, and thank you to everyone joining the call today.

Before we dive into our prepared remarks, I want to congratulate John on his upcoming retirement and thank him for his countless contributions to Target. Today marks his 76th earnings call leading our investor relations team. As many of you know, John has played an instrumental role in communicating the strength of our brand and sharing our story with the investment community. Personally, I'm grateful for his counsel, partnership, and friendship, and I wish him all the best in this next stage of life. Earlier this year, we shared how our refreshed strategy, all in service of returning to sustainable growth, is centered on serving busy families with a differentiated combination of style, design, quality, and value in a way that is uniquely Target.

To deliver on this strategy, we've outlined four key priorities: leading with merchandising authority, elevating the guest experience, accelerating technology, and strengthening our team and communities. Across each of these four priorities, we're seeing encouraging momentum. Our results show that our strategic choices, combined with the hard work of our team, are delivering change that is resonating with guests. To be clear, we're just getting started, and there's a lot of important work ahead. But importantly, these early results give us increasing confidence that the investments we continue to make, all in service of our strategy, will support continued growth on both our top and bottom line while making Target not just a place to shop, but a destination for busy families.

As we continue to elevate what we sell and how we sell it, they're choosing us more often, reflected in another strong quarter of traffic growth, up 3.6% to last year, which is a slight acceleration on a two-year basis compared to Q1. In a moment, Cara, Lisa, and Jim will unpack our second quarter results and key investments we've made to elevate the business. But before they do, I'd like to highlight a few examples of the progress we're making and our work in flight. In light of our focus on merchandising authority and elevating the guest experience, Q2 saw the completion of the largest volume of in-store transitions of any quarter over the past decade.

Those changes included layout changes encompassing nearly half of our center store grocery assortment, a complete reimagination of our Fun 101 floor pad, replacing nearly three-quarters of our decorative accessories assortment in home, and continuing to deliver limited time partnerships that reinforce Target as the destination for what's new, on-trend, and culturally relevant. In a testament to the dedication of our team, even with this volume of change, we're seeing continued progress on inventory reliability and guest satisfaction metrics, which are now reaching levels we haven't seen in many years. While we know there is still a lot of work to be done for every store to reach its full potential, we're very encouraged by this progress we're seeing and the momentum we're building. Just as importantly, we're delivering an incredible amount of trend-right newness while also providing outstanding value across the entire portfolio.

As we've said consistently for years now, all of our business decisions are grounded in a focus on the consumer and providing outstanding value on every trip to Target. Over the past year alone, we've lowered prices on more than 10,000 items, reinforcing our commitment to ensuring families can find a unique combination of style, quality, and affordability every time they shop with us. Cara and Lisa will expand on these efforts in a few minutes. To support this year's ambitious agenda, we're accelerating our tech capabilities to make every part of the business stronger, from how we serve guests to how we equip our teams.

We're continuing to modernize our tech foundation while investing in new industry-leading capabilities that allow us to personalize experiences across stores and digital channels, strengthen one of the nation's premier retail media businesses, help our merchants identify and respond to emerging trends faster than ever before, and connect with both new and existing guests in increasingly relevant ways. Earlier this year, we became one of only a small number of retailers to partner initially with OpenAI, Google Gemini, and other leading platforms to shape the future of agentic commerce. While still small in total today, as more consumers begin to explore the benefits of agentic shopping, Target's digital traffic sourced from external AI platforms is growing more than 3.5 times the industry as compared to a year ago.

I'm also excited to share that to help us build on that momentum, we recently announced our new Chief AI Officer, Chandhu Nair, who will accelerate how we harness the power of AI to create better guest experiences and unlock new capabilities across our business. As we continue investing in products, the guest experience, and tech, at Target, it's our team that brings a great guest experience to life, and we're committed to continue investing in our team. We've expanded training to help them sharpen skills while deploying technology that simplifies work, reduces friction, and gives them more time to focus on what matters most, serving our guests. Core to our roots as a company, we've been investing in communities all across the country. Already this year, we've opened 24 new full-size stores, serving new neighborhoods and creating thousands of jobs in communities we hadn't previously served.

Every new store allows us to become a trusted new neighbor for tens of thousands of additional busy families, delivering a joyful shopping experience, affordable everyday essentials and inspiring finds, and bringing the best of our brand closer to more and more families. Together with our new supply chain facilities, we're investing billions of dollars across the U.S., strengthening local communities while positioning us to serve even more guests for years to come. I want to close by thanking our team members across the company. Every achievement this quarter, from executing major merchandising transitions to advancing our technology capabilities, opening new stores, and so much more, reflects their commitment, resilience, and care. Thank you for everything you've done so far this year and for the passion you bring every day. Because of you, we're building a stronger Target with tremendous opportunities still ahead.