Target outlines $15B sales growth target amid CEO transition and acceleration strategy

Earnings Call Insights: Target Corporation (TGT) Q2 2025

MANAGEMENT VIEW

* Brian C. Cornell announced the Board's unanimous election of Michael J. Fiddelke as Target's next CEO, effective at the start of the 2026 fiscal year, emphasizing that "Michael is the right candidate to lead our business back to growth." Cornell highlighted the launch of the Enterprise Acceleration Office, stating, "The team is building out specific plans to address the attributes of our working model that slow us down in an environment that demands more speed and agility than ever before."
* Cornell addressed the ongoing tariff environment, noting, "As one of the largest importers in the country, the prospect of higher tariffs meant we were facing some major financial and operational hurdles as we entered the year."
* Michael J. Fiddelke, incoming CEO, outlined three key priorities: "reestablish our merchandising authority in a way that is distinctly Target," deliver a consistently elevated guest experience, and fully leverage technology to improve speed, guest experience, and efficiency. Fiddelke described the "FUN 101" transformation in Hardlines as already delivering positive comps and traffic growth, with plans to extend this approach to other categories.
* Richard H. Gomez, Chief Commercial Officer, reported, "comparable sales were down 1.9%, a nearly 2 percentage point improvement to Q1," and cited growth in digital channel comparable sales of 4.3%, with Target Circle 360 same-day delivery growing more than 25%.
* Gomez highlighted the end of the Ulta Beauty partnership in August 2026, explaining, "we believe we have a compelling opportunity to repurpose this space to meet those changing needs."
* James Lee, CFO, stated, "net sales were down 0.9% from a year ago. This was nearly 2 percentage points better than our Q1 performance, led by an even stronger improvement in our store sales trends." Lee also addressed inventory, "Q2 ending inventory... was about 2% higher than a year ago."

OUTLOOK

* Jim Lee confirmed, "we're maintaining our full year guidance, which anticipates a low single-digit decline in our comparable sales, GAAP EPS of $8 to $10 and adjusted EPS of approximately $7 to $9."
* Management noted, "we're still facing a highly volatile and uncertain environment and believe it's prudent to maintain a cautious approach in the back half of the year."
* Fiddelke reaffirmed the growth focus: "you'll see us take those learnings and apply them to somewhere between 30 and 40 more markets before the year is out."

FINANCIAL RESULTS

* Lee reported, "the business generated GAAP and adjusted EPS of $2.05 in the second quarter compared with $2.57 a year ago."
* Gross margin rate declined by 1 percentage point, "primarily the result of about 210 basis points of pressure within merchandising, reflecting inventory adjustment costs related to the slowdown in our first quarter sales combined with the tariff-related pressures including purchase order cancellation costs."
* SG&A dollars were "0.1% lower than a year ago, driven by strong expense control across the organization."
* Lee stated, "after-tax ROIC of 14.3%" for the trailing 12 months and capital expenditures of "$1.9 billion in capital expenditures so far this year."

Q&A

* Katharine Amanda McShane, Goldman Sachs: Asked about price increases from tariffs and expectations for the second half. Gomez responded, "we are employing several different strategies including diversifying country of production... we're continuing to negotiate with our partners to ensure that we're offering everyday good value to the consumer. What we've said and it continues to be our position is that we'll take price as a last resort."
* Michael Lasser, UBS: Asked how succession and strategy will drive change and investment needs. Fiddelke said, "you can expect me to operate with candor, urgency and pace and making the changes that we need to get the growth we expect." On capital, "capital will follow any high-return projects that we see."
* Corey Tarlowe, Jefferies: Inquired about achieving the $15 billion sales growth target over five years and operational levers. Fiddelke stated, "growth... is my sole primary goal as I step into role. The path to get there is focused on the 3 priorities I laid out."
* Joseph Isaac Feldman, Telsey Advisory: Asked about driving merchandising change with the current team. Gomez explained, "the team needs to do is say, okay, we need to do more of that more consistently, more frequently across bigger parts of the business."
* Rupesh Dhinoj Parikh, Oppenheimer: Queried about the wide guidance range. Lee said, "given that there's still quite a bit of runway left for the year and a lot of heightened uncertainty on -- with consumers and tariff uncertainty, we thought it was more prudent just to take a cautious approach and maintain that guidance."
* Simeon Ari Gutman, Morgan Stanley: Asked about internal vs. external drivers for performance. Fiddelke said, "We've seen a consumer that had to be choiceful with their spend... we've got work to do."
* Edward Joseph Kelly, Wells Fargo: Asked about comp momentum and back-to-school performance. Fiddelke said, "We're encouraged by where we sit so far in both of those seasons."

SENTIMENT ANALYSIS

* Analysts consistently raised concerns around tariffs, guidance caution, and the timeline for improvement, with a generally neutral to slightly negative tone seeking clarification and urgency.
* Management maintained a measured but constructive tone, acknowledging underperformance and emphasizing urgency for improvement. Fiddelke repeatedly stressed, "we need to move faster, much faster, and we are."
* Compared to the previous quarter, management's tone is more urgent and focused on accelerating change, while analysts remain cautious but persistent in pressing for details on strategy and execution.

QUARTER-OVER-QUARTER COMPARISON

* Guidance remains unchanged with a low single-digit decline in comparable sales and adjusted EPS of $7 to $9.
* Management announced CEO succession, a significant strategic shift, and continued emphasis on the Enterprise Acceleration Office, which was introduced last quarter but is now highlighted as central to organizational change.
* Q2 saw improved comparable sales and traffic trends, particularly in stores and certain categories, versus Q1 declines.
* Analysts' focus shifted from broad execution and margin recovery in Q1 to specific questions about growth catalysts, investment needs, and internal transformation in Q2.
* Management confidence in new leadership and strategy is more pronounced than in Q1, with explicit forward-looking goals such as the $15 billion sales growth target over five years.

RISKS AND CONCERNS

* Tariff-related pressure and uncertainty remain material, with management stating that "the team has made significant progress in mitigating their impact on the P&L, while maintaining our focus on value by limiting the impact on our pricing."
* Inventory levels increased due to purposeful investments and higher product costs; management indicated these were strategic to support in-stocks and reliability.
* Analysts questioned the wide guidance range, ongoing headwinds, and the pace at which strategic initiatives will translate into improved performance.

FINAL TAKEAWAY

Target is entering a new chapter with Michael Fiddelke set to become CEO, pledging to accelerate change and restore growth by focusing on merchandising authority, guest experience, and technology. Despite ongoing margin and sales headwinds from tariffs and a cautious consumer environment, management is maintaining full-year guidance and targeting $15 billion in sales growth over the next five years. The company is leveraging its differentiated brand portfolio, digital growth, and operational improvements, while navigating a volatile retail landscape with a sense of urgency and strategic clarity.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/tgt/earnings/transcripts]

MORE ON TARGET

* Target Corporation (TGT) Q2 2025 Earnings Call Transcript [https://seekingalpha.com/article/4815278-target-corporation-tgt-q2-2025-earnings-call-transcript]
* Target: A Long-Shot Bet [https://seekingalpha.com/article/4815021-target-a-long-shot-bet]
* Target: Strong Financials Vs. Weak Growth [https://seekingalpha.com/article/4805918-target-stock-strong-financials-versus-weak-growth-hold-for-now]
* Target shares remain underwater as CEO pick and exec assurances fail to soothe investors [https://seekingalpha.com/news/4487430-target-shares-remain-underwater-as-ceo-pick-and-exec-assurances-fail-to-soothe-investors]
* Target limps into the open as CEO choice overshadows better-than-feared Q2 results [https://seekingalpha.com/news/4487343-target-limps-into-the-open-as-ceo-choice-overshadows-better-than-feared-q2-results]