Target Corp: 2Q26 Immediate Call Postmortem
“Broad based strength” is the headline that Fiddelke leads with on many fronts: guest demographics, categories, cadence, etc. “Continuing to invest in newness, convenience, and an elevated shopping experience”. People always ask me why Target has a right to exist (in a world of Walmart and Amazon) and this is the specific reason as nobody else at mass is really focused on all three of those things. We can all question what the underlying financial model is of that focus, but consumer relevance should not really be a debate.
To the point about their strategy: 2Q26 largest volume of in store transitions of any quarter in past decade. Replaced nearly ¾ of decorative accessories assortment. Layout changes for nearly half of center store grocery assortment. Complete reimagination of the Fun 101 pad.
To the point about financial model: Have lowered prices on more than 10,000 items in past year alone. Target has never needed to be the cheapest place to buy product though (they really never have) – they just need to close enough that the consumer doesn’t balk. 95% of school supply assortment is priced at or below last year. Fiddelke said we should think about value as an “and”: Expect More “AND” Pay Less.
Pleased with response from guests to 1Q26 improvements in baby, health & wellness, and beauty. The response has been “durable”. Post transition snack sales running more than 15% ahead of last year, despite already being among their largest categories in sales. Evolving presentations in TVs and bikes and dedicating more of that space to wearable tech, LEGO, trading cards, etc. About time as this has been a bear thesis for the better part of a decade! Sales of Forward $10 headphones running more than 35% ahead of last year. LEGO sales up more than 30%, plush sales up more than 20%.
The LoveShackFancy partnership ended up being the largest limited time collaboration in Target’s history –that is a big statement given some of the stuff they have done over the years.
For back half of year, will introduce Target Beauty Studio in more than 600 stores. I hope they learned something from the old Beauty Concierge program that never really panned out. There has been a perpetual opportunity for Target to be more like Ulta and take their share.
Regarding traffic momentum: They are seeing guests respond to all the changes and traffic is following. Not satisfied with home and apparel and mentioned there is more work to do in 2027 and beyond. Fiddelke gets “really excited” about plans to improve the home business but noted it has longer lead times. Major change coming in bedding in kids and bath assortments as head into 2027. Big changes in kitchen and dining coming. Seems like the main takeaway here for bulls is that the strong growth at the company today has many legs to it for next few years. Fiddelke later explicitly mentioned in Q&A that there is a lot more in front of them than is behind them with momentum from all the initiatives at the company.
Encouraged by what they are seeing in back-to-school so far, although have a few big weeks ahead of them. Seeing broad based strength in everything from school supplies to kids apparel to beauty and beyond.
Fulfilled nearly 30% more same-day and next-day units than last year and continuing to invest to get faster. The big point Lisa wanted to make is Target becoming “more reliable, more productive, and better positioned for long term growth this quarter”. Consistency, consistency, consistency – that’s the bear thesis and they clearly know it and once again proactively addressed it.
Feels like people are sleeping on Roundel. Gross billings grew nearly 20%. Also Target Plus marketplace GMV up more than 40% and Target Circle membership revenue up more than 40%.
“There is no bigger team sport than retail” – Michael Fiddelke. Amen brother, you are preaching to the choir here.
Hulbert is legend IR for consumer/retail. Everybody has a story about him. Sad to see him retire as it’s just not going to be the same without him. Am happy Fiddelke took the time to thank him. Disappointed sell-siders in Q&A didn’t feel the need to (Parikh, Horvers, McShane, Bellinger, Tarlowe, Gutman) – some of those people have personally known him for 20 years. I want to express my thanks as well as he was a tremendous partner over the years as well as just a friend.
*These are our unabridged quick thoughts and notes from the call. We get them out as soon as possible after the call ends. Management has given some topics to dig deeper into and will circle back afterwards with much more in depth work on what was mentioned. You can find that work (and more on Target and other retail/consumer research) at our website here: M Squared Capital
Originally posted on X and Substack.