Target 1Q26 results beat expectations and FY26 guidance was raised, while the rating remains Neutral

Overview

This is Goldman Sachs' initial earnings review of Target Corp.'s 1Q26 results. The report notes that the company's adjusted EPS, comparable sales, gross margin, EBIT, and inventory performance all exceeded expectations, and that it raised FY26 guidance for net sales, operating margin, and EPS. Despite strong near-term operating data, Goldman Sachs maintains a Neutral rating with a 12-month target price of $112.

Core views

The core view is that Target's 1Q26 sales momentum, traffic, digital channel, and margins were all meaningfully better than expected, and the upward revision to full-year guidance shows management has more confidence in sales and profit improvement for the year; however, Goldman Sachs' valuation framework still views the current risk-reward as insufficient to support a more positive rating, with key downside risks including weaker consumer spending, cost inflation, price competition, and margin pressure.

Analysis framework

The report uses a comparison of actual results versus GS/consensus expectations, focusing on operating metrics such as EPS, comparable sales, average ticket, traffic, channel performance, gross margin, SG&A, EBIT, and inventory, and combines this with the company's raised FY26 guidance to assess forward earnings visibility. The valuation section uses a risk-reward P/E framework, with relative multiples under bear, base, and bull case scenarios to support the 12-month target price.

Methodology notes

• Earnings comparisonActual results versus GS/consensus expectations

  Assessment of earnings beat

  Compare 1Q26 actual EPS, comparable sales, gross margin, SG&A, and EBIT against Goldman Sachs forecasts and LSEG consensus expectations to identify the sources of upside surprise in revenue, margins, and expenses.

• Valuation methodsRisk-reward P/E framework

  Bear, base, and bull case relative multiples

  Goldman Sachs' 12-month target price of $112 is based on a risk-reward P/E framework using bear, base, and bull case relative multiple assumptions of 55%/60%/65%.

• Factor profileGS Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile

  Goldman Sachs' factor profile evaluates growth, financial returns, valuation multiples, and composite percentile by comparing the stock with the market and industry peers, providing investment context.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Target Corp. (TGT)

  Directly covered target in the report

  Strengths

  1Q26 EPS, comparable sales, gross margin, and EBIT all beat expectations; strong growth in the digital channel and same-day delivery; FY26 sales and margin guidance raised; inventory declined y/y.

  Weaknesses

  SG&A expenses rose 7.3% y/y, with higher compensation, training, capital project, and marketing spending; the target price is below the disclosed price, and the rating remains Neutral.

  Comparison

  Relative to GS and LSEG consensus expectations, Target performed better on EPS, comparable sales, gross margin, and EBIT; FY26 net sales guidance is also above GS/consensus expectations.

  Risks

  Weaker consumer spending, cost inflation, price competition, omnichannel and supply chain investments, and merchandise mix changes could weigh on sales and margins.

Key data

• 1Q26 adjusted EPS$1.71Above GS estimate of $1.32 and LSEG consensus estimate of $1.46.
• 1Q26 comparable sales+5.6%Above consensus expectation of +2.5%; average ticket +1.1%, traffic +4.4%.
• Two-year compounded comparable sales+1.8%Improved from -1.0% in 4Q.
• Store comparable sales+4.7%The physical store channel maintained positive growth.
• Digital channel comparable sales+8.9%Target Circle 360 same-day delivery grew more than 27%.
• FY26 net sales growth guidanceabout +4%Previous guidance was about +2%, above GS/consensus expectations of +1.8%/+2.3%.
• FY26 operating margin guidanceup more than 20 bp y/yPreviously about +20 bp y/y; FY25 operating margin baseline was 4.6%.
• FY26 EPS guidancenear the high end of the $7.50-8.50 rangeGS/consensus expectations are $7.92/$8.14.
• Gross margin29.0%Above GS/consensus expectations of 28.7%/28.3%, up about 80 bp y/y.
• SG&A expense ratio21.9%Up 12 bp y/y; below GS expectation of 22.3% and in line with consensus expectation of 21.9%.
• EBIT$1,135mnAbove GS/consensus expectations of $849mn/$948mn; EBIT margin was 4.5%.
• Inventory-5.6% y/yCompared with retail sales growth of 6.4% in the same period, indicating inventory control outpaced sales growth.
• Pre-market stock price reactionabout +2%The report states the stock rose about 2% pre-market.

Impact & implications

The short-term impact is somewhat positive: the earnings beat, gross margin improvement, and higher FY26 guidance help boost market confidence in Target's sales recovery and earnings improvement. In terms of investment implications, the report confirms the fundamental improvement, but because the target price is below the disclosed price and the rating remains Neutral, Goldman Sachs believes the current share price already fairly reflects the improvement outlook, and more evidence is needed to prove that comparable sales, cost control, and margin improvement are sustainable.

Risks

• Weak consumer spending could slow traffic and sales trends.
• Inflationary pressure in product costs, freight/transportation, and wages could erode margins.
• The competitive environment may force Target to discount more aggressively, pressuring prices and gross margin.
• Omnichannel and supply chain investments, along with merchandise mix changes, could create margin pressure.
• If inventory and promotional strategies are poorly executed, future gross margin and cash flow could be affected.

What to watch

• Monthly or intra-quarter cadence of comparable sales during 1Q.
• Quarter-to-date sales trends across categories.
• The relative impact of gross margin drivers, including markdowns, merchandise mix, and shrink.
• Management's latest view on inflation.
• Inventory positioning and the outlook for future promotions.
• More details on the raised FY26 guidance and its sustainability.