Traffic momentum and apparel and home performance
Q: Rupesh Parikh from Oppenheimer asked about the sustainability of traffic momentum and whether management was surprised by weaker performance in apparel and home despite traffic gains.
A: Michael Fiddelke (CEO) stated that traffic is a primary indicator of sustainable long-term growth and guest trust. Cara Sylvester (Chief Merchandising Officer) noted that while certain categories like baby, wellness, beauty, and food showed sustained growth, apparel and home performance are not where they need to be, though categories receiving changes like kids basics and decorative accessories are showing positive guest responses.
Q: Rupesh Parikh from Oppenheimer asked for further expectations regarding back-to-school season performance.
A: Michael Fiddelke and Cara Sylvester expressed encouragement with back-to-school and back-to-college trends, highlighting strong execution, inventory placement, and guest reception of exclusive collaborations like Love Shack Fancy.
Apparel and home category lead times and execution
Q: Christopher Horvers from JPMorgan asked if the slower turnaround in apparel and home decor is simply due to longer lead times.
A: Michael Fiddelke and Cara Sylvester agreed that lead times are longer in home and apparel, requiring multiyear journeys. Cara Sylvester highlighted that major changes are slated for bedding, kids home, and bath in Q3, and kitchen and dining in 2027.
Q: Christopher Horvers from JPMorgan asked Jim Lee about potential future tariff refunds and the proper jumping-off point for 2027 earnings.
A: Jim Lee (CFO) stated that the Q2 tariff refund represents the significant majority of applied refunds with more expected, and advised investors to anchor on adjusted EPS excluding tariff refunds, which was up 20% year-over-year in Q2 and up 24% year-to-date.
Price investments and sales cadence
Q: Kate McShane from Goldman Sachs asked how to reconcile price investments across 10,000 items with being pleased on price gaps, and inquired about sales cadence.
A: Michael Fiddelke and Cara Sylvester explained that Target maintains competitive pricing while pairing style and design with value, such as offering affordable $5 to $20 price points in toys and apparel. Jim Lee added that strong top line growth and consistent performance were observed across months and income brackets.
Store cohorts, remodels, and Fund 101 category
Q: David Bellinger from Mizuho asked about performance across store cohorts and whether any subsegments are underperforming.
A: Michael Fiddelke and Lisa Roath (COO) highlighted that top line growth was broad-based and driven by traffic across the chain, supported by 24 new stores and over 100 remodels year-to-date that successfully elevate the guest experience.
Q: David Bellinger from Mizuho asked for context on Fund 101 performance, specifically regarding trading cards and future category buildouts.
A: Cara Sylvester described Fund 101 as a successful exercise in making sharper space choices, which allowed the creation of unique toy, fandom, and collectible destinations, including expanded LEGO and trading card offerings.
Long-term earnings power and merchandising strategy
Q: Corey Tarlowe from Jefferies asked where the greatest opportunity lies over the next 3 to 5 years to enhance earnings power that investors might not fully appreciate.
A: Michael Fiddelke emphasized that the company is only two quarters into a refreshed multiyear plan, aiming for sustained profitable top line growth through inventory reliability, guest experience enhancements, and team execution across stores, supply chain, and digital.
Q: Corey Tarlowe from Jefferies asked if any aspects of the merchandising strategy surprised management and where untapped runway remains.
A: Cara Sylvester pointed to the 7 enterprise priority areas, particularly Beauty where the upcoming Target Beauty Studio launch in over 600 stores will introduce dedicated beauty advisers and an immersive experience.
Store reset progress and shorter product cycles
Q: Simeon Gutman from Morgan Stanley asked what percentage of the store has been touched by the merchandising reset and how the company prepares for shorter fashion cycles.
A: Michael Fiddelke stated that progress is ongoing across multiyear horizons rather than a single fixed percentage, and Cara Sylvester noted that apparel cycles continuously shift through seasons like fall, back-to-school, and Q4 women's space updates to keep assortments fresh.
