Target (TGT 5.21%) shares rose today on its fourth-quarter earnings report, but don't be fooled. This was another stinker of a report.
Comparable sales fell 2.5% and overall revenue was down 1.5% to $30.5 billion, which matched estimates. The company did make some improvements on the cost side, and gross margin rose from 26.2% to 26.6%, due to lower inventory shrink, lower supply chain and digital fulfillment costs. After adjustments, earnings per share rose from $2.41 to $2.44, beating the consensus at $2.16.
Target stock has been on a surprising comeback in recent months, up roughly 50% as investors are hoping that new CEO Michael Fiddelke can turn the business around.
Guidance was encouraging as comparable sales are expected to return to growth in 2026, with net sales up 2% on a small increase in comparable sales. It also called for adjusted EPS of $7.50-$8.50, which compared to $7.57 in 2025. Notably, February sales were up.
Investors heard from Fiddelke for the first time in the Q4 earnings report. Here are two things to know about his turnaround plan.
Image source: Target.
1. Target is leaning on non-merchandise sales
Following in the footsteps of Walmart and Amazon, which have built significant businesses in advertising and memberships, Target is doing the same with its Roundel media network and Target Circle 360, its $99/year paid subscription service that offers unlimited free same-day delivery on orders over $35.
In the fourth quarter, non-merchandise sales grew more than 25%, which included more than a double in membership revenue, double-digit growth in Roundel, and more than 30% growth in its e-commerce marketplace.
In 2026, it expects non-merchandise sales to add more than one percentage point of growth, which is key because that represents high-margin revenue.
NYSE: TGT
Key Data Points
2. Fiddelke is focused on Target's reputation
Target has alienated both sides of the political spectrum in recent years, and the company seems to have made a mistake by getting too involved in the culture wars.
At the same time, the company has arguably taken its eye off the ball with in-store operations.
Fiddelke has committed to improving operations and getting its reputation back to being known for style, design, and value.
Target said it would lay off 1,800 employees in October, and it's planning to invest more in store labor to improve issues like long checkout lines and out-of-stocks. As part of those efforts, Target plans to increase capital expenditures from $4 billion to $5 billion.
If the company can make those nuts-and-bolts improvements, the retail stock is poised to keep climbing. It will take time, but the guidance shows the company is moving in the right direction.
