Dive Brief:
- As Target aims to reinvigorate growth with a new CEO, its second quarter net sales dropped 0.9% year over year to $25.2 billion, the company announced Wednesday. The retailer’s merchandise sales declined 1.2% while non-merchandise sales improved 14.2% compared to the previous year.
- Comps fell 1.9% for the quarter, with store comps down 3.2% and digital comparable sales up 4.3%. Additionally, the company’s gross margin dropped by one percentage point to 29%, per the release.
- Meanwhile, Target’s operating income showed a 19.4% decrease, coming in at $1.3 billion, and net earnings fell 21.5% to $935 million. The retailer kept the full year outlook it provided in May.
Dive Insight:
Target touted some improved metrics compared to its first quarter results but, without a return to growth, the company remains unsatisfied with itself.
“I know we’re not realizing our full potential right now,” soon-to-be CEO and current COO Michael Fiddelke said on a call with analysts Wednesday. “While we’re proud of the many ways that Target is unique in American retail, we have real work in front of us, and to be blunt, we need to move faster. Much faster.”
Target’s sales results parallel shifts in how consumers are reevaluating discretionary purchases and turning attention to value with essential goods. Compared to the same period last year, Target saw sales declines for its apparel, home furnishing and decor, and household essentials product categories. Beauty, food and beverage, and hardlines experienced increases.
“Bread over blazers as shoppers pursue ‘needs’ over ‘wants’ given discretionary remains under pressure,” TD Cowen analysts said in a note shared with Retail Dive on Wednesday.
Target’s beauty improvement follows news last week that the mass retailer mutually agreed to end the Ulta Beauty at Target shop-in-shop experience in 2026.
“Trends and expectations can change rapidly across virtually every sector of retail, but this is particularly true in beauty,” Chief Commercial Officer Rick Gomez said on the call. “Over time, in light of shifting consumer trends, we believe we have a compelling opportunity to repurpose this space to meet those changing needs.”
Gomez emphasized positive results with several recent merchandising moves, including Target’s partnership with Champion, its back to school value offerings and its Halloween selection. The executive said that nearly a third of Target’s candy selection this year is new and about three-quarters of its home products for the holiday are new as well.
But the continued sales declines this quarter and the move to hire internally for its next CEO left some analysts cautious about Target’s progress — even when factoring in the macroeconomic headwinds at play industry wide.
“The overall revenue deterioration of 0.9% is relatively shallow, but the 1.9% slip in comparable sales is more serious,” GlobalData Managing Director Neil Saunders said in emailed comments. “And, most significantly, there is no external reason why Target should be experiencing this kind of weakness on the top line.”
Target's Q2 results were still a let down despite expected widespread pressure on discretionary spending this year, Fitch Ratings Senior Director David Silverman said in emailed comments.
“While Fitch expects declines across discretionary retail categories in 2025 due to consumer health moderation and the impact of tariffs, Target’s value positioning and consumables focus should be yielding better results than the low single digit revenue decline we expect for Target this year,” Silverman said. “Longer term, Fitch believes Target has the scale, infrastructure, merchandise mix and consumer connections to succeed in a competitive retail industry.”
