Target (TGT.US) has issued a stronger-than-expected profit outlook for fiscal year 2026 and expects to return to sales growth after three consecutive years of decline, signaling that its strategic transformation is beginning to yield results. The retailer anticipates adjusted earnings per share for FY2026 to be between $7.50 and $8.50, with the midpoint of $8.00 surpassing analysts' average estimate of $7.63. Target also forecasts a roughly 2% increase in net sales compared to FY2025, adding that it expects net sales growth in every quarter of the full fiscal year. Buoyed by the announcement, Target's shares rose nearly 4% in premarket trading on Tuesday.

Meanwhile, Target reported that in the fourth quarter of FY2025, ended January 31, sales decreased by 1.5% year-over-year to $30.45 billion, slightly below analysts' consensus estimate of $30.5 billion. Comparable sales declined by 2.5%, a slightly steeper drop than the expected 2.4%. Operating profit fell 5.9% to $1.38 billion, while adjusted earnings per share came in at $2.44, beating market expectations of $2.15.

The robust profit guidance reflects progress in Target’s efforts to improve performance. The company aims to end its prolonged sales slump by investing in better merchandise, renovating stores, and integrating new technologies into its operations. However, as consumers grow increasingly price-sensitive, Target must also fend off competition from rivals.

For decades, Target built its reputation on offering "cheap chic" across the United States, but it has struggled since the post-pandemic boom. Weak performance has sparked internal concerns at the historic retailer and led to a loss of market share. A key challenge has been reduced household spending on home decor and other discretionary goods—core categories for Target—as shoppers prioritize lower-priced essentials. The retailer has limited exposure to the grocery sector, which accounts for less than a quarter of its sales. Additionally, its relatively high proportion of imported goods makes it more vulnerable to tariff disruptions.

Michael Fiddelke, previously Target’s chief operating officer, took over as CEO in February. In his first month, Fiddelke restructured the leadership team following the departure of two senior executives and eliminated approximately 500 positions. Target also added two new board members, with former CEO Brian Cornell serving as board chair. In a company-wide meeting after assuming the CEO role, Fiddelke acknowledged that Target had lost some trust among customers and employees and pledged to rebuild those connections. He emphasized that the company will focus on key categories and develop distinctive product offerings and shopping experiences.

Target’s sense of urgency is also driven by the fact that Walmart (WMT.US), which also recently appointed a new CEO, continues to attract more affluent shoppers. At the same time, Costco (COST.US) maintains steady growth, with its Kirkland private-label brand and membership warehouse model remaining popular with consumers.

Some areas of Target’s business have shown improvement in recent months. Its beverage segment performed better thanks to new product launches, while categories such as toys, video games, and sports equipment also rebounded. In stores, Target has encouraged employees to provide friendlier service. Customer traffic and sales accelerated in December and January. In the most recent quarter, food, beverages, beauty, and toy sales performed well.

Fidelke stated on Tuesday, "Target achieved healthy and positive sales growth in February, marking an important milestone in our return to growth this year. This strengthens my confidence in the momentum we are building and the future we are creating together."

Still, the retailer has more work to do in winning back consumers. Neil Saunders, Managing Director of GlobalData, commented in a client note on Tuesday, "Forward guidance has improved compared to before. Although these growth projections are reasonable, they still lag behind overall market growth, indicating that the turnaround will take time to fully materialize."

Additionally, Target found itself at the center of turmoil after federal immigration enforcement actions in Minnesota, under the Trump administration, led to protests and the killing of two Americans by federal officers. Immigration officials briefly detained two Target employees. The situation caused some store employees to call in sick, while others expressed disappointment that the company did not publicly address the unrest. Target joined several other Minnesota-based companies in signing a letter calling for de-escalation.

Target is one of the latest retailers to report quarterly results this earnings season. In recent weeks, consumer-facing companies have painted a picture of U.S. shoppers who remain cost-conscious but still spend on items offering good value or uniqueness. Retailers are also assessing the implications of the Supreme Court’s ruling to overturn global taxation provisions.