Target (TGT.US) Q2 conference call: Seven “transformation core” tracks contribute 50% of sales, and AI and supply chain investment layouts grow over the long term

The Zhitong Finance App learned that Target (TGT.US) held an earnings conference call for the second quarter of 2026. After three years of difficult adjustments due to declining revenue, Target is proving to the market that its transformation strategy is paying off with strong performance for three consecutive quarters. Ahead of the market on August 19, this major retailer with more than 2,000 stores announced financial results for the second quarter of the 2026 fiscal year ending August 1. All core indicators fully exceeded Wall Street expectations, and once again raised its full-year results guidance.

Net sales increased 5.3% year over year to US$26.54 billion, exceeding market expectations of US$26.11 billion. Adjusted earnings per share reached $4.11, which doubled from $2.05 in the same period last year, and far exceeded analysts' expectations of $2.33. Same-store sales increased by 3.8%, far exceeding Wall Street's expectations of 2.4%, mainly due to a 3.6% increase in customer traffic. Among them, physical store same-store sales increased 2.7%, digital channel same-store sales increased sharply by 8.7%, and same-day delivery services grew by more than 25%. The six core product categories all achieved year-on-year growth. Among them, Fun 101 (hardline category) achieved double-digit growth, while the food and beverage and beauty categories all achieved high single-digit growth.

The product strategy is beginning to bear fruit, but clothing and home furnishings are still shortcomings, and the seven major tracks have become the core of transformation

CEO Michael Fiddelke has achieved positive comparable sales growth for two consecutive quarters since taking office in February. This quarter completed the largest in-store transformation in the past ten years — adjusting the grocery layout of nearly half of the central stores, completely remodeling the Fun101 area, and replacing nearly three-quarters of the home decor accessories category. The company has identified seven priority growth areas (beauty, health care, food, infant, women's fashion, home, toys and other culturally oriented categories), which currently contribute about 50% of sales.

In terms of specific category performance, food and beverage adjusted snack sales increased by more than 15% year on year; in Fun101, LEGO increased by more than 30%, plush toys increased by more than 20%, and trendy products priced at $5-20 are highly sought after; in terms of beauty, Beauty Studio will be launched in over 600 stores next month. However, clothing and home furnishings are still the biggest shortcoming — the CEO admits that the performance of these two categories “barely achieved positive growth” and is the area that needs to be improved the most. The home furnishing industry has a long cycle, and the transformation is a “multi-year process”; in terms of clothing, children's basic models have achieved double-digit growth, but the overall recovery will take time. The company plans to make major adjustments to categories such as kitchen and dining in 2027.

Increased operational execution supports transformation, and long-term growth in AI and supply chain investment layout

COO Lisa Roath emphasized that consistency (consistency) is the core theme of current operations — during large-scale store changes, inventory reliability indicators reached “the highest level in many years”, and core products achieved the best spot rate in recent years. Delivery time increased significantly, and same-day/next-day delivery orders increased nearly 30% year over year. The company introduced Proxima digital twin tools to optimize inventory flow and balance store transformation with customer satisfaction.

In terms of production capacity, 17 new stores were opened this quarter (24 for the whole year), and over 100 stores underwent comprehensive renovation (target of about 130 for the whole year). As stores assume fulfillment center functions with more than 95% of sales, these investments have also improved physical experience and delivery efficiency. In terms of technology investment, the company appointed the first chief artificial intelligence officer. The growth rate of digital traffic from external AI platforms was more than 3.5 times the industry average; the number of wish lists created during the back-to-school season increased by more than 50%, and the conversion rate increased by nearly 20%. Annual capital expenditure is expected to be around $5 billion. In his summary, the CEO emphasized that the current results are only in the “initial stages”. There is still a lot of work to be done in 2027 and beyond, but two consecutive quarters of growth and increased customer satisfaction are laying the foundation for a sustainable recovery for this retail giant with 2,000 stores.

Conference content

presenter

Ladies and gentlemen, thank you for your patience. Welcome to Target's second quarter earnings conference call. As a reminder, this meeting is being recorded on Wednesday, August 19, 2026. I will now entrust the meeting to Mr. John Hulbert, VP of Investor Relations. Please speak.

John Hulbert, Vice President of Investor Relations

Good morning everyone, and thank you for attending our Q2 2026 earnings conference call. Joining me today are Michael Fiddelke, CEO; Cara Sylvester, Chief Product Officer; Lisa Roath, Chief Operating Officer; and Jim Lee, Chief Financial Officer. Later, Michael, Cara, Lisa, and Jim will share their insights on our second quarter results and their outlook for the rest of the year.

At the end of their presentations, we will open a question-and-answer session over the phone. This morning, investors and others will listen to our presentation via webcast and participate in this conference call. Jim and I will answer your follow-up questions after the session. Additionally, I would like to remind you once again that any forward-looking statements we make this morning are subject to risks and uncertainties, including those described in the earnings press release issued this morning and our newly submitted 10-K document.

In today's financial statements, we also mentioned non-GAAP financial measures, including adjusted earnings per share, adjusted operating income, and adjusted sales, management, and administrative expenses. A reconciliation table of all non-GAAP data with the most directly comparable GAAP data was included in this morning's press release, which was posted on our investor relations website. Finally, as you all know, I'm retiring after more than 26 years at Target, and today's earnings call will be my last time to host the earnings conference call.

At the same time, I am very happy to announce that Justin Madsen has accepted the position of the company's vice president of investor relations. From now on, Justin will host the quarterly conference call. The first meeting will be held in November, in the third quarter.

Well, let's leave it up to Michael to get started. Michael?

Michael Fiddelke, CEO and Director

Thank you John, and thank you to everyone who participated in the conference call today. Before we officially begin our statement, I would like to congratulate John on his upcoming retirement and thank him for his numerous contributions to Target. Today is his 76th time hosting the earnings call, and he has been leading our investor relations team. As we all know, John played a critical role in conveying the strength of our brand and telling our story to the investment community.

I am personally very grateful for his guidance, cooperation and friendship, and wish him all the best in the next phase of his life. Earlier this year, we shared our new strategy to return to a sustainable growth path, centered around providing busy families with a unique combination of style, design, quality, and value, and showcasing Target's brand identity. To achieve this strategy, we have set four key priorities: leveraging product sales dominance, improving customer experience, accelerating technology development, and strengthening team building and community building.

We have all seen encouraging progress in these four priorities. Our results show that our strategic choices, combined with the hard work of our team, are bringing about changes that resonate with customers. Of course, we are just getting started, and there is still a lot of important work ahead. But importantly, these initial results have given us growing confidence that our continued investments — all of which serve our strategy — will support continued growth in our revenue and profits, while making Target not only a shopping destination, but an ideal destination for busy families.

As we continue to improve product quality and sales methods, customers are choosing us more and more frequently. This is reflected in another strong quarter of customer traffic growth, with a year-on-year increase of 3.6%. Compared with the first quarter, the growth rate accelerated slightly within two years. Later, Cara, Lisa, and Jim will be detailing our second quarter results and key investments to improve our business. But before they get started, I'd like to highlight a few of the advances we've made during the flight. Given our focus on improving product display authority and customer experience, we completed our largest in-store transformation in the past decade in the second quarter.

These changes include adjusting the layout of nearly half of the central store's grocery categories, completely transforming the Fun101 area, replacing nearly three-quarters of the home decoration accessories category, and continuing to launch limited-time cooperation projects to consolidate Target's position as the preferred destination to lead trends and meet cultural needs. It's worth mentioning that even after such large-scale changes, our team has shown outstanding professionalism and continued to make progress in inventory reliability and customer satisfaction, reaching the highest level in many years.

We know there is still a lot of work to be done for each store to reach its full potential, but we are very encouraged by the progress made so far and the good momentum that is being created. Equally important, we have not only launched a large number of new products that keep up with the trend, but also provide excellent value for all product portfolios. As we've emphasized over the years, all of our business decisions are consumer-centered, and we are committed to providing customers with a great value experience every time they visit Target.

Over the past year alone, we've reduced the prices of more than 10,000 items, once again confirming our commitment to enabling every household to find something that combines style, quality, and price every time they shop. Cara and Lisa will be detailing these initiatives later. To support this year's ambitious goals, we are accelerating the upgrading of technical capabilities to comprehensively enhance every aspect of the business, from customer service to team building.

We continue to modernize our technology infrastructure while investing in new, industry-leading technologies to personalize experiences across stores and digital channels, strengthen our position as one of the nation's top retail media businesses, help our merchants identify and respond to emerging trends faster than ever before, and connect with new and existing customers in a more targeted manner. Earlier this year, we became one of a handful of retailers partnering with OpenAI, Google Gemini, and other leading platforms to shape the future of smart commerce.

Although the total amount of digital traffic from external artificial intelligence platforms is still small, as more and more consumers begin to explore the advantages of smart shopping, Target's digital traffic from external artificial intelligence platforms has increased more than 3.5 times compared to a year ago, far exceeding the industry average. I am pleased to announce that to help us maintain this growth momentum, we have recently appointed our new Chief Artificial Intelligence Officer, Chandhu Nair, who will accelerate our use of the power of artificial intelligence to create better customer experiences and unlock new capabilities across our business.

At Target, we continue to invest in products, customer experience, and technology, and it's our team that makes great customer experiences a reality. We are also committed to continuing to invest in our team. We've expanded the scope of training to help them improve their skills while deploying technology that streamlines workflows, reduces friction, and gives them more time to focus on what matters most — serving customers. As a company, we always uphold the original intention of giving back to society and invest in communities all over the country.

Since this year, we've opened 24 new large-scale stores, served new communities, and created thousands of jobs in areas we didn't previously cover. The opening of each new store gives us an opportunity to become a trusted new neighbor for thousands of busy families, bringing them a delightful shopping experience, affordable everyday essentials, and amazing products, and bringing our brand's quality products and services to more families.

Combined with our new supply chain facilities, we're investing billions of dollars across the US, which not only strengthens our local communities, but also lays the foundation for us to serve more customers in the years to come. Finally, I would like to thank all the employees of the company. Every achievement achieved this quarter, from implementing major product transitions to improving technical capabilities and opening new stores, etc., reflects their dedication, resilience, and sense of responsibility. Thank you for everything you've done this year and for the passion you put in every day. Thanks to you, we're building a stronger target, and there are endless opportunities ahead.

Next, I'll hand the phone to Cara.

Cara Sylvester, Executive Vice President and Chief Merchandise Officer

Thanks, Michael. In my last earnings call, I outlined how our corporate strategy is centered around serving busy families to meet their needs by increasing their value in the areas they care most about. This prompted us to identify seven priority areas and invest disproportionately in these areas because we believe these areas are critical to busy families.

As a reminder, these areas include building leading beauty destinations, expanding our role in health and wellness, leading food trends, celebrating the lives of infants and young children, leading women's fashion, inspiring people's love for home, and creating culturally oriented categories such as toys and entertainment products. Currently, these areas account for approximately 50% of our sales, and we believe they will contribute even more to our growth in the future.

We're still in the early stages of this journey, but what we've seen so far is full of confidence. Importantly, our growth is mainly in areas where we are undergoing significant change, further proof that we are investing in the right opportunities and that these choices are beginning to translate into real results. As you may recall, in the first quarter, we invested heavily in baby products, wellness, and beauty, and we were delighted with customer feedback.

Importantly, this positive response is long-lasting. Not only have we achieved strong quarterly results, but we are also continuing to increase our growth momentum. This is critical to solidifying Target's product sales authority. It enables us to clearly understand customer needs, make more accurate product mix choices, and provide novel, differentiated, and value-for-money products through a unique Target shopping experience. In the second quarter, we put this concept into practice through major adjustments in food and beverage, Fun101, home decor accessories, and other key categories, creating more reasons for customers to choose Target.

Let's talk about food first. Earlier this year, I talked about our vision of making food a destination, not just a category that customers casually buy when shopping in our stores, but the reason they choose Target. We recently completed the largest food transformation in more than 10 years, changed the way nearly half of the food on the central shelf is displayed, added new and unique products, and redesigned the end shelves and in-shelf displays to make it easier for customers to find the products they need. But it's not just about rearranging shelves.

We have also expanded the supply of fresh products, created new sales areas for seasonal products, increased space for rapidly growing categories such as snacks, international cuisine, and functional coffee, and continued to introduce emerging brands and trendy products. The market response has been very encouraging. Snacks, drinks, and confectionery were originally one of our top selling categories, and these adjustments have further strengthened this advantage. For example, after adjustments, snack sales increased by more than 15% over the same period last year, with protein bars, meat bars, and healthy snacks growing particularly strongly.

Equally important, we combine innovation with superior value. This is the embodiment of our product display authority: understanding customer needs and acting quickly to perfectly integrate trend, quality, differentiation and price advantage to create products with unique target characteristics. Furthermore, in the second quarter, our team carried out large-scale innovations in the Fun101 category. This fully reflects the careful choices we have made to create a differentiated product portfolio and shopping experience.

This means improving the way traditional items such as TVs and bicycles are displayed, and allocating more space to categories such as wearable technology, LEGO bricks, tradable cards, and collectibles. We need to make these choices more consistently, stay close to customers, keep up with cultural trends, and allocate space carefully. A great example is our newly upgraded Target-exclusive Heyday electronics line, which brings more appealing style, design, and value to the category.

Sales of our trendy $10 headphones increased by more than 35% over the same period last year. In terms of toys, we've added a plush toy wall, expanded our LEGO product range, and significantly enhanced the shopping experience, making it more exciting and immersive. Although these improvements have only been live for a few weeks, our focus on providing great value and culturally trending toys has continued for several quarters and drove business growth again in the second quarter. Sales of LEGO products increased by more than 30% over the same period last year.

Sales of plush toys increased by more than 20%, and customers are flocking to trendy new products at attractive prices of $5, $10, $15, and $20. Finally, I'd like to take a moment to talk about one of the things that really makes Target unique: our ability to create cultural moments. These moments bring us far more than just creating short-term heat. They can attract new customers, deepen our brand influence, and solidify Target's position in the cultural field. In the second quarter, exclusive collaboration projects continued to demonstrate the strength of this strategy.

Our collaboration with Pokémon entertained fans of all ages and became one of the most popular moments in our history. In addition to the amazing interactions we've received across platforms, this exclusive partnership has brought Target thousands of new customers and solidified our leading position in fan culture and collectibles. As the back-to-school season begins, we will continue this momentum and launch an exclusive partnership with LoveShackFancy.

This collaboration eventually became the largest limited-time joint collaboration in Target's history. I think this perfectly shows Target's unique charm. We found a brand with huge cultural influence and worked with their amazing team to create a truly unique product. Our purchasers and designers are committed to incorporating their aesthetic ideas into multiple categories, including partnering with some important national brands.

We used Target's scale to make it an immersive shopping experience and kept the price of most items below $25 — a combination of trendy style, cultural heritage, and a variety of products, and excellent value for money. This combination is unique to Target and difficult to replicate. Our focus on authority in product management is also driving significant progress in another key area: improving inventory reliability. For Lisa and the operations team, ensuring sufficient inventory is more than a goal.

This is both a team effort and a priority in product sales. We must ensure that customers can find the products they want anytime, anywhere. This requires a change in the way our product sales team and operations team work together. Later, Lisa will detail how our team worked together to achieve this goal. Looking ahead, our team is working to continue the positive momentum of the second quarter into the second half of the year.

Later this quarter, we'll launch Target Beauty Studio in over 600 stores to create a more advanced beauty experience and further strengthen our industry-leading position in this field. We have just completed a 75% update of our home decor accessories series and will continue to strengthen our home product line. We will also make major adjustments to children's home and bedding in the future. Of course, we're still in the back-to-school season and back-to-college season right now.

This year, our product portfolio that combines fashion, trend, and value is loved by customers. In fact, 95% of our school supplies cost the same or less than last year. Additionally, we've enhanced the shopping experience by optimizing the wish lists for teachers and college students through artificial intelligence technology and providing more personalized content on the app's home screen. Positive customer feedback also confirms this: the number of wish lists created has increased by more than 50% compared to last year, the number of products added to the list has more than doubled, and the conversion rate for our key pages during the back-to-school season has increased by nearly 20%.

The next few weeks remain critical, and we'll do our best to ensure a successful return to school and college sales. Throughout the third quarter, we will continue to provide customers with more reasons to choose Target through our differentiated private brands, exclusive partnerships, and highly attractive prices. We've cut prices for over 10,000 items over the past 12 months, and plan to continue to cut prices even more this year. As we said before, this transformation won't happen overnight.

In some categories, we are pleased with the progress made and are seeing significant growth. However, in other categories, such as home and clothing, our performance has not met expectations, and this work will continue until 2027 and beyond. But compared to the beginning of this year, we are now more aware of where we are headed. Our pace is picking up speed, and there's growing evidence that the choices we make resonate with our customers. We know exactly what to focus on and how to be successful.

We know where we need to improve, and the team is prioritizing the work with a high sense of urgency. Although there is still a lot of work ahead, I am confident in the direction we are moving forward and the team that is eager to win. Team members, I'd like to thank you for the tremendous changes you've made this year. I can't thank you enough for the energy, creativity, and dedication you bring to our customers, brand, and business every day. Thank you!

So I handed over the phone to Lisa.

Lisa Roath, Executive Vice President and Chief Operating Officer

Thanks, Carla. As Chief Operating Officer, I'm leading a team dedicated to creating an easy, enjoyable, and friendly experience for guests by improving the execution of all departments of the company. The team will always focus on this, but at the core of this goal is the importance of being consistent. This year, as the pace of change in the company's business accelerates, consistency is particularly important. This means we need to clarify and strictly implement various work priorities, translate plans into actual actions, and achieve expected goals every day.

It also means we need to be consistent in how we lead, collaborate as a team, listen to feedback, and be clear about what matters most. In today's rapidly changing environment, it's more important than ever to keep a clear mind and a consistent style of work. Ultimately, this consistency must be reflected in the experiences we create for our customers. We hope that every store can deliver on its promises, that every interaction with customers can make them feel warm and thoughtful service, and that every product sold brings a pleasant experience. Consistently excellent experiences are what we strive for.

Although we have yet to fully achieve our goals, the progress made so far this year is encouraging. Looking back at the second quarter, it's impressive what our team achieved. As Carla said, we have completed the largest space renovation project in over a decade. Our team rebuilt the food area, transformed Fun101 Kids Park, prepared more than 600 stores for the launch of Target Beauty Studio, opened 17 new stores, promoted renovation projects at more than 100 stores across the country, and prepared and successfully launched one of our most important seasonal sales seasons — homecoming season and returning to college season.

While we're excited about the results of these changes, it hasn't been easy. From transforming traditional bicycles and TV walls to create a more targeted shopping experience, to implementing the largest central supermarket food area over the years, to adjusting the way products are distributed during the back-to-school season, thousands of decisions and countless overnight shifts have ultimately contributed to these changes. Since much of this work has only recently been completed, customers are only beginning to feel the impact of these changes.

This makes us more and more confident that these changes and the continued investment in the future will benefit our customers and business. Each attempt brings us continuously learning how to improve future transformations, bringing us closer to our vision of creating the most enjoyable shopping experience in retail. Improved planning tools have improved store execution, and closer coordination between products, supply chains, and store operations ensures that our team can stay focused on serving customers even when dealing with significant changes.

This end-to-end way of thinking guides our preparations for the back-to-school season and back-to-school season. By pre-deploying inventory and dedicating truck capacity to key seasonal products, we've increased product availability at our highest-selling stores and created a more reliable and enjoyable shopping experience for customers during these critical seasons.

At the same time, our team is intensively preparing for the opening of Target Beauty Studio. From planning display facilities to training professional beauty consultants, everything is being carried out intensively to provide customers with a better beauty experience. A new beauty space is under construction, and we're looking forward to launching these new services in over 600 stores starting next month.

Although our transformation efforts have caused some inconvenience to the customer's in-store experience, and the work is far from over, we are encouraged by the progress we have made so far. These developments are also reflected in our inventory reliability metrics, which continue to improve. For the most important and most frequently purchased products, we have achieved the best inventory supply in recent years, and the overall reliability index has reached the highest level in many years.

This means more customers can buy everything they want to buy at Target after shopping, which is one of the most important ways we can build trust. What needs to be clear, however, is that even with this progress, we are still far from reaching our goals. We will continue to place high priority on the continuous improvement of inventory reliability metrics and strive to achieve greater consistency across all stores and categories.

To that end, we've invested in tools like Proxima. Proxima is the digital twin of our intermediary inventory positioning system, which enables our team to test and iterate inventory flow solutions before they go live. Proxima helps us evaluate inventory processes more efficiently between warehouses and stores, enabling our team to quickly understand potential downstream impacts, learn faster, and make inventory decisions with more confidence. Additionally, our delivery speed has been significantly improved.

Last quarter, our same-day and next-day delivery orders increased by nearly 30% compared to the same period last year, and we will continue to invest more and strive to be faster. A series of initiatives, such as store transformation, product mix adjustment, technology upgrades, and inventory reliability improvements, have jointly created an excellent shopping experience and have been recognized by customers. Customer satisfaction continues to rise in multiple indicators, continuing the growth trend of the previous quarter, and also confirms that our continued investment in the team, training, and team effort is achieving remarkable results.

In addition to our work to help grow our current business, we are also investing in the future of our operating network, from the store to the supply chain. These investments aim to improve Target's reliability, productivity, and better prepare it for long-term growth. We opened 17 new stores this quarter, and so far this year we have opened 24 new full-size stores. Currently, we are undergoing a complete renovation of more than 100 stores, and it is expected that approximately 130 stores will be renovated this year. These investments will enable us to better serve our customers and lay a solid foundation for the long-term growth of our business.

Since our stores act as distribution centers for more than 95% of sales, their impact goes far beyond the in-store experience; they not only bring inventory closer to customers, but also enable faster, more reliable, and more cost-effective delivery. This end-to-end philosophy is also influencing how we continue to strengthen our global supply chain. Since joining us at the beginning of this year, Chief Supply Chain Officer Jeff England has been committed to building on the strong foundation we have and making sure our team works together to get the right products to the right place at the right time.

We are encouraged to see many opportunities to further streamline our workflow and increase efficiency and productivity over time. Finally, I would like to restate my point. The progress we have made so far is encouraging, but continued stability is not something that can be achieved in a quarter or two; it requires continuous effort day in and day out. We still have a lot of work to do, such as streamlining execution processes, improving collaboration, and improving reliability, all to achieve sustainable profitable growth.

All of this was not achieved overnight; it required painstaking efforts. Achieving all of this requires the selfless dedication of all of our team members across our stores, supply chain facilities, service centers, and headquarters. This has been a transformative year, and our team has met every challenge with perseverance, flexibility, and a strong commitment to our customers and each other. At this point, I would like to extend my heartfelt thanks to every team member who is here today. It was your dedication that enabled our strategy to be implemented and gave me full confidence in the company's ability to reach its full potential.

So I handed over the phone to Jim.

James Lee, Executive Vice President and Chief Financial Officer

Thanks Lisa. As you've heard from Michael, Cara, and Lisa, our second quarter results are yet another strong proof that our strategy is paying off. We have experienced overall growth in many aspects of our business. More importantly, strong revenue growth has also translated into steady profit performance. Net sales for the quarter were $26.5 billion, up 5.3% from the same period last year. Same-store sales increased by 3.8%, mainly due to a 3.6% increase in customer traffic, while the average customer unit price remained flat. In-store same-store sales increased 2.7%, while online same-store sales increased 8.7%. Among them, same-day delivery business grew by more than 25%, which was the main driving force for growth.

As Cara shared, we've seen particularly strong revenue growth in the Fun101, Food & Beverage, and Beauty categories, which has boosted our confidence that customers will respond positively as we invest in product differentiation and innovation in sales methods. Net sales grew at a CAGR of 2.1% in the second quarter, 30 basis points higher than in the first quarter. Furthermore, businesses other than our own business have continued to grow strongly. Specifically, the gross revenue of the Roundel platform increased by nearly 20%. GMV in the Target+ market grew by more than 40%, and Target Circle 360 membership revenue also increased by more than 40% compared to last year.

These areas continue to provide us with significant revenue and profit growth, increasing our relevance, loyalty, and range of choice with our customers. Judging from the profit and loss statement, our gross margin for the second quarter was 33.7%, an increase of 4.7 percentage points over the same period last year, including 3.7 percentage points of revenue from IEEPA tariff refunds. Excluding this impact, our gross margin was about 1 percentage point higher than the same period last year, thanks to the fact that we have offset last year's higher price cuts and order cancellation costs, and have benefited from continued growth in high-margin revenue streams.

Furthermore, our strong product sales performance was partially offset by continued value-added investments. The second-quarter income statement included pre-tax tariff refund proceeds of $994 million, which were factored into the reduction in sales costs. As we've always emphasized last year, our team remains committed to dealing with the tariff environment and continues to focus on how to create value for customers. The adjusted operating margin for the full year of 2025 was 4.6%, a significant decrease from historical levels, reflecting our continued investment in value in the face of a sharp rise in tariff costs.

We are always committed to providing our customers with products that are excellent value for money. We will prioritize finding other ways to reduce the impact of tariffs, including changing origin, working with suppliers to find offsetting measures, and adjusting product categories. These strategies have helped us reduce tariff pressure while continuing to provide consumers with the fashion, design, and value they expect from Target.

As you've heard from Cara and Michael before, we've reduced the prices of more than 10,000 items in the past year, and 95% of our school supplies prices remained the same or lowered this year during the back-to-school season, and we plan to continue to cut prices so that customers can get more value every time they visit Target. Back to the Profit and Loss Statement. Sales, management and administrative expenses (SG&A) increased 7% over the same period last year, in line with our first-quarter trends and my expectations at the March financial meeting.

This reflects higher compensation costs, including our investment in additional hours and training for field teams, as well as higher incentive pay and planned expenses associated with capital projects. Our sales, management and administrative expenses ratio for the second quarter was 21.6%, about 30 basis points higher than the same period last year. Overall, our operating margin for the second quarter was 9.6% compared to 5.2% in the same period last year. Tariff refunds contributed 3.7 percent to this year's profit margin. Excluding this impact, our operating margin was approximately 70 basis points higher than the same period last year.

In the second quarter, we combined US GAAP (GAAP) and adjusted earnings per share (EPS) of $4.11, compared to $2.05 for the same period last year. Tariff refunds contributed $1.65 to earnings per share. Excluding these refunds, GAAP and adjusted earnings per share both increased approximately 20% over the same period last year. Now, I want to talk about capital deployment, starting with our consistent priorities, which have been the same for decades. We begin by investing fully in business projects that meet our strategic and financial standards. Second, we will work hard to maintain our dividend and continue our good record of annual dividend growth for over 50 years.

Finally, we will use any remaining cash other than the first two uses to gradually buy back the shares, subject to our moderate A credit rating. Regarding our top priorities, so far this year, we have invested approximately $2.4 billion in capital expenditure, an increase of nearly 30% over the same period last year. This mainly reflects our intended value-added investment in new store openings, full store refurbishment, and supply chain and technical capabilities. We anticipate annual capital expenditure of approximately $5 billion to support the strategic growth priorities we set in March.

Regarding our second priority, we paid $518 million in dividends in the second quarter and paid just over $1 billion cumulatively in the first half of the year. We must not only deliver on our long-standing dividend promises, but also work to gradually reduce our dividend payout ratio to 40%. Finally, with regard to our third priority, we still expect to be able to resume share buybacks in the second half of the year within established capital deployment targets.

As always, the size and speed of future share buybacks will depend on our operating prospects, cash flow, capital expenditure plans, and our commitment to maintain an A grade credit rating. Inventory was $13.2 billion, up about 3% from last year, which supports our plans to continue expanding our business and our focus on further improving inventory levels, particularly in categories with high turnover rates. Finally, our return on investment (ROIC) after tax for the past 12 months was 15.4%, up from 14.3% in the same period last year, reflecting our strong operating profit growth this year.

Before I look to the future, I'd like to thank our amazing team. This year, we have high hopes for them to quickly implement our clear strategy, and I sincerely thank them for their enthusiasm, focus, and dedication. We have achieved tremendous results in a relatively short period of time, and these results are increasingly reflected in our financial results and increasing customer satisfaction metrics. This progress is directly due to our team's execution and commitment to serving the millions of families who shop at Target every day.

I want to thank them for everything they have done and their continued enthusiasm for the future of work. Now let's talk about the performance outlook. Based on our performance in the first half of the year, we raised our net sales growth forecast for the full year to around 5%, which is 1 percentage point higher than the previous forecast. In terms of operating margin, we expect the full year's operating profit margin (tax refund not included) to be about 0.5 percentage points higher than last year's adjusted 4.6%.

Overall, we raised our earnings per share forecast range from $7.50 to $8.50 to $9.90 to $10.90. The adjusted range includes the $1.65 tariff refund revenue confirmed in the second quarter, but does not take into account the impact of additional refunds that may occur during the rest of the year. As a result, without taking into account the impact of tariff refunds, the midpoint of our expected range is $0.75 higher than the previous range. All in all, we are encouraged that the company has maintained healthy revenue growth and improving profitability for the second consecutive quarter.

At the same time, we still have a lot of work to do to fully realize the long-term potential of our business. We will continue to invest to drive sustainable growth, maintain a sound income statement and balance sheet, and remain focused on providing our customers with the fashion, quality, and value they expect from Target.

So I gave the microphone back to Michael.

Michael Fiddelke, CEO and Director

Thanks Jim. Before we go into the Q&A session, I'd like to summarize what our team has heard today. At the beginning of this year, we developed a new strategy aimed at starting a new chapter in sustainability. This means we will serve busy family customers with Target's unique style, design, quality, and great value for money. We want to be a trusted shopping paradise for families, meeting their everyday needs while helping them discover new things, set trends, and add more fun to their everyday lives.

The team has been implementing this strategy with a high sense of urgency and rigor. As you've heard today, we've seen this strategy take root in exciting ways across all areas of the company's business. Of course, we still have a lot of work to do, and we're still in the early stages. It is encouraging to see that results are accumulating, with each input building on the previous one, and ultimately creating a whole greater than the sum of its parts.

Our mission now is to consistently perform all services and strive to earn the trust of every customer we are honored to serve. Now, before I end my remarks, I'd like to stop and thank our team. We've asked them a lot this year. Looking ahead to the rest of the year, we still have a lot to ask for. So, I'd like to wholeheartedly thank my team. I can't thank you enough for everything you've done and everything you've done to start a new chapter in Target's development.

Next, we'll answer your questions.

Q & A session

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Our first question came from Oppenheimer's Rupesh Parikh.

Rupesh Parikh, Oppenheimer Research Division

Congratulations on your strong results this quarter. So, let's talk about traffic growth. Looking at the past year and two, we've seen a very strong growth momentum. I'm curious what you guys think about the sustainability of this growth momentum? Also, considering the traffic in physical stores is already impressive, are you surprised that the performance of home and clothing products is not ideal? After all, the increase in their traffic comes naturally.

Michael Fiddelke, CEO and Director

Thanks for the question, Rupesh. I think customer traffic is really a good entry point because when we saw strong traffic growth like in the second quarter, and the good momentum so far this year, it all confirms that customers have given positive feedback on the changes we have made, and it also shows that we are gaining more and more trust, which ultimately translates into customers visiting Target more and more. In my opinion, passenger traffic is definitely the most important health indicator for measuring sustainable long-term growth.

Seeing customer feedback before and after our in-store activities, I think this is one of the most encouraging things for us and gives us confidence in all future changes. Kara, can you talk about some of the customer feedback we saw in the second quarter that made us happy?

Cara Sylvester, Executive Vice President and Chief Merchandise Officer

Of course. What I think is really encouraging is to first focus on some of the changes we highlighted in the first quarter. For example, the mother and baby, health and beauty businesses, the traffic and sales of these businesses continue to grow. We then made major adjustments to the restaurant business in the second quarter and saw the business accelerate in terms of growth, customer interaction, and traffic. Additionally, we've talked about Fun101 many times and its impact on our business.

So, Rupesh, I think our current goal is to continue growing in all categories. As far as home and clothing is concerned, it should be clarified that we are not satisfied with the performance of these two businesses, and there is more work to be done in 2027 and beyond. But we'll continue to focus and identify what needs to be improved. Encouragingly, the improvements and adjustments we have made in both of our businesses have received positive feedback from customers, and traffic has grown accordingly. For example, in the second quarter, we focused on the children's clothing line. We have re-installed children's floor mats, achieved a double-digit increase in sales of children's basic models, and the youth art class series increased by 50%.

As a result, we've seen positive customer feedback. In the home sector, we discussed adjustments to decorative accessories and improved in-store experiences, and we saw a corresponding increase in performance. These results have convinced us that we are on the right path. We will continue to execute rigorously and continue our plans to advance these businesses for the rest of the year and next year.

Michael Fiddelke, CEO and Director

Yes. As Carla said, we are eager to build on the momentum we have achieved, especially in categories that still need to be improved. While it is encouraging to see growth in all major product categories, stagnant growth in the apparel and home categories has not been our long-term goal. We expect these two high-margin categories to return to a path of continued growth.

Rupesh Parikh, Oppenheimer Research Division

OK. There's one more follow-up question. There are some positive reviews about the back-to-school season in prepared reviews, but can you share what you expect for the back-to-school season or add some of what you've observed so far?

Michael Fiddelke, CEO and Director

We'll probably spend the rest of our time talking about back-to-school season and back-to-college season. I think this is probably everyone here's favorite season. The first thing I want to say is that so far we are encouraged by sales during the back to school season and back to college season. Also, we spend a lot of time in physical stores at this time of year to listen to customer feedback on what they like, which makes us more confident that our products and services for the back to school season and back to college season are really popular.

Kara, can you tell us more about the products we are currently launching during the back to school season and back to school season? In many ways, this is a perfect example, with trendy design as the lead and highlighted by a very competitive price.

Cara Sylvester, Executive Vice President and Chief Merchandise Officer

Yes, I think even though this is a critical time, we are encouraged and have seen positive feedback from busy families on our new products, quality products, and a very attractive price combination. During the back-to-school season, we saw strong sales momentum in various fields, from school supplies to children's clothing to beauty products. It's exciting to kick off this season with LoveShackFancy — it turned out to be the largest design collaboration in our history, and we're incredibly excited.

This is a reflection of how we are continuously improving our collaboration model to bring freshness to every category, including school supplies, pastel notebooks, and the $5 Cat & Jack basics. This combination of fashion, design and value is very popular. Sales were also strong during the back-to-school season. Among them, the Heyday series products stand out. This is a great example. We chose a category and incorporated Target's consistent fashion, design, and values to launch $5 gadgets and $10 headphones. These products all have trendy colors and trendy patterns. We have seen that these products and dorm essentials have received a very positive market response. We are very encouraged by this. We are facing serious challenges in the next few weeks, but we are very excited about the sales so far.

Michael Fiddelke, CEO and Director

Before we end the discussion about the back-to-school season, one more point needs to be emphasized: in this period, it is essential to do basic skills well. We know that if inventory isn't in the right place at the right time, and if we don't provide a great customer experience, we can't succeed in a season where every school's peak traffic season is different. I'm so proud to see how our team is doing so far in all the stores I've visited. Lisa, can you talk more about how we serve our customers in the best way from a customer experience perspective?

Lisa Roath, Executive Vice President and Chief Operating Officer

Yes. I think it's very important to emphasize that the basic elements Michael mentioned played an important role in both the back-to-school season and the back-to-college season, helping us to consistently provide a great shopping experience. When it comes to the back-to-school season, one improvement we're proud of is having plenty of inventory. We know that at this time of year, customers want to be able to find every item on their kid's list.

This year, we've successfully increased inventory availability for all of our key products. Therefore, throughout the rest of the year, we will continue to uphold this rigorous execution and take these important moments and every aspect of our daily operations seriously.

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The next question comes from J.P. Morgan's Christopher Horvers.

Christopher Horvers, J.P. Morgan Chase Research

My first question was about clothing and home decor. Can you talk about the recent adjustments you've observed in these categories? These categories are critical to Target's product experience; are you analyzing these business changes simply because of long preparation times that lead to slower adjustments? Other categories, since more third-party brands are involved, are likely to be adjusted more quickly.

Michael Fiddelke, CEO and Director

Yes, Chris, you're right in many ways. The household industry has a long cycle, so the pace of change is not as fast as the food and beverage industry. At the beginning of the year, we said that the development of the home furnishing industry will be a multi-year process. Carla just briefly mentioned some situations in the clothing industry, but we might as well spend some more time talking about the home furnishing industry. Mara and her team have made plans to gradually grow the home furnishing industry, and I'm very excited about it. This takes time. We are already seeing the dawn of positive customer feedback in areas where we are beginning to make changes.

Cara Sylvester, Executive Vice President and Chief Merchandise Officer

Of course. I think in the second quarter, as we mentioned before, decorative accessories — which can be said to be the core of the home, are the focus of improving the home experience — we not only optimized the range of products, but also enhanced the shopping experience, and the performance of these stores was particularly outstanding. In the upcoming third quarter, our range of bedding, kids' home and bathroom products will be undergoing major changes. Looking ahead to 2027, our kitchen and dining products will also see major adjustments.

So, I think the theme is more accurate curation and really compelling value, but once again, we must always stick to this style, design, and value, and enhance the overall experience. So, you mean, these businesses require longer preparation times. So we do need time to move forward category by category, but we're encouraged by the changes we've made, and we've made plans for the next few quarters.

Michael Fiddelke, CEO and Director

Chris, the only thing I'd like to add is that this isn't a problem unique to the apparel and home sector, but rather at the heart of the change we're committed to driving — not only this year, but next year, and beyond. The challenge we face is: on the one hand, we need to drive changes urgently; on the other hand, can we effectively implement these changes across 2,000 stores and a team of 400,000 employees? I think this is a fantastic opportunity. That means we've accumulated visions we wanted to achieve over the years, and it's up to us to clearly order and prioritize those visions.

Just yesterday, we were also discussing some plans for 2027 or even 2028, particularly in regions where delivery cycles are critical. We are energized to think about the possibilities, but how to keep up with the pace of change and ensure effective implementation is up to us. If I had to pick the team's most notable achievement so far this year, it was to significantly improve the customer experience while driving store transformation. This is really a double win. The team's progress in inventory reliability and the increase in customer satisfaction ratings at a time of many changes in the store are full proof of the team's hard work so far this year.

Christopher Horvers, J.P. Morgan Chase Research

Understood. The next thing I want to ask Jim is if there will be any more refunds later this year? Also, let's talk about the potential earnings base for 2027, which you mentioned before: $9 to $10. How do you think these tariff refunds will affect earnings? What should be a reasonable starting point for 2027?

James Lee, Executive Vice President and Chief Financial Officer

Yes, I'm saying that the tariff refunds we confirmed in the second quarter made up the vast majority of the IEEPA tariff refunds we've applied for so far. We expect more refunds to arrive. The way I view basic results is that we focus on adjusted earnings per share after excluding tariff refunds. We think this is a more accurate measure, especially considering the timeframe when refunds are included in the income statement. As you can see in the second quarter, adjusted earnings per share, excluding tariff refunds, increased 20% year over year. From the beginning of the year to date, this number has increased by 24%. Therefore, we want everyone to use this as a benchmark and look forward to future growth.

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Next question comes from Katharine McShane of Goldman Sachs.

Katharine McShane, Goldman Sachs Group Research

We'd like to hear about your philosophy on price investing. I know you mentioned in your prepared statement that you have reduced the price of 10,000 items so far this year, and you plan to continue to cut prices even more. But at the same time, you're also happy with the current price gap, particularly in the food and beverage sector. So, I'd like you to explain the contradiction between the two and talk more about your year-end pricing strategy planning.

Michael Fiddelke, CEO and Director

Yes, thanks for the question, Kate. We are very happy with our pricing strategy, which requires our team's daily efforts to ensure that consumers can find great value for money on our shelves. You should have heard our emphasis on “value for money”, “expect more, spend less” is exactly what our brand promises, and this is no accident. We want to lead the trend with fashion, design, and differentiation. The many changes we have made throughout our stores are aimed at achieving this goal in more and more categories.

But we hope that when you see a beautiful sweater in the clothing section, the smile on your face will be even brighter when you look over the price tag and see its price. So for us, we have to do both of these things every day. I think the actions we have taken so far, even this year alone, are sufficient proof of that. Over the past year, we've reduced the price of over 10,000 items. We're proud of this price investment. We think this is critical for consumers. We hope that while reducing prices, we can also achieve greater differentiation in the clothing area. Kara, if you have anything else you'd like to add, feel free to add it.

Cara Sylvester, Executive Vice President and Chief Merchandise Officer

I think you're right. We always have to balance the positive and negative sides of the equation. And I think we've always kept our prices competitive. This year we also proved it. We will continue to maintain this advantage in every way. We're working to bring new, more affordable options to all of our product lines. For example, the toy business, we discussed it in the first quarter, and in the second quarter we did more — we changed the shopping experience. We launched a $5 Barbie doll, and customers responded well to the affordable prices of $5, $10, $15, and $20. So as Michael said, this is the key to Target's value in the unique field of retail. This is the direction our team works towards every day.

Katharine McShane, Goldman Sachs Group Research

Also, I wanted to quickly ask, can you talk about the pace of pay this quarter?

Michael Fiddelke, CEO and Director

Yes, I'd love to say that first, Jim, feel free to add anything. But we've seen strong growth throughout the quarter. I think the overall strong performance from all aspects is what I want to highlight. Both customer groups and product categories showed this strong momentum throughout the quarter. As you've just heard, we're also very encouraged by the back-to-school season and how the back-to-school season is progressing so far.

James Lee, Executive Vice President and Chief Financial Officer

Yes. Kate, I'd like to add that yes, we did see continued strong revenue growth over the months and across all income groups.

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The next question comes from Mizuho Bank's David Bellinger.

David Bellinger, Mizuho Securities America Ltd. Research Division

We have two questions. Same-store sales increased strongly again this quarter. Can you analyze the performance of each store group or quartile in more detail? Are there any store segments whose performance is still below the company average and can improve performance through store transformation or other measures?

Michael Fiddelke, CEO and Director

Yes. I still want to emphasize that we have always adhered to the concept of “full coverage” this quarter. Strong growth in customer traffic led to an increase in revenue, and this growth was reflected throughout the chain. Great question, we know we haven't applied all of the most advanced ideas to every store. It is for this reason that investment in store renovation is particularly important. Because of this, the changes we are undergoing — such as remodeling half of the fresh area in the central area of the store, as in the second quarter — are critical to rolling out the latest and most advanced ideas to the entire chain.

But we're very excited about the capital and upgrades we've invested this year, as well as some of the capital and operating costs that have come with it. We know that after a store is renovated, the customer response is always very strong, and improving store performance is also critical. Another area where we will continue to invest is new stores. Lisa, I think we might as well briefly introduce customer feedback from the 24 newly opened stores so far.

Lisa Roath, Executive Vice President and Chief Operating Officer

Yes. I mean, it's back to one of our most important priorities, which is to consistently deliver a great customer experience. This was partly achieved by opening new stores and refurbishing existing stores, and partly by investing in our team. In terms of new store openings and store renovations, we announced the opening of 17 new stores this quarter. This is a very important quarter for us. We have opened 24 new stores so far this year. Additionally, we have advanced renovation projects for more than 100 stores.

We're excited about these investments because our customers and communities are excited about them too. These investments make it easier for more customers to enjoy Target's quality services, which is one of the best ways we can tell the world the story of Target. I think one of the best ways to continuously improve the customer experience in our existing stores is to invest in our team.

We've already discussed this year's special investment in payroll, and we've also discussed training. All of this helps improve our team's level of service and allows us to better provide a quality experience for our guests. Therefore, we will continue to ensure that we invest in hotel operations while also focusing on improving the guest experience through our team.

David Bellinger, Mizuho Securities America Ltd. Research Division

That's great. I'd also like to follow up on the Fun101 category, which saw another double-digit increase this quarter. Can you elaborate on what it consists of, particularly the tradable card categories? Is this category growing at an accelerated pace and getting better product distribution from some of the big trading card producers? What are the next plans to expand this category?

Michael Fiddelke, CEO and Director

Yes. We're excited to see everyone's positive feedback on the changes Fun101 has made. As you all know, we've made more progress in this area because we started improving at the end of last year and are continuing to make progress, and there will be more changes in the future. Cara, can you talk about the transformation we experienced with Fun101 from a macro perspective?

Cara Sylvester, Executive Vice President and Chief Merchandise Officer

Yes. I think this perfectly explains the importance of making more accurate choices when it comes to investing in space. As we thought last year, we know very well what categories Target is leading in. At the same time, this year we are also clearly aware of which categories have insufficient space utilization rates. So we took action and completed the largest spatial adjustment in the company's history last quarter, which enabled us to introduce and create a truly unique shopping destination. For example, in the toys category, we've simplified the shopping experience, which allows us to better promote the LEGO brand, as well as the plush toy display wall and some of the other products I've mentioned before.

In the field of pop culture, we've launched a new fan experience and destination that combines elements such as tradable cards and collectibles as well as exclusive collaborative projects to create a complete experience. We talked about partnering with Pokémon in the first quarter. In the second quarter, we launched the second wave of collaboration, which perfectly presented the results of the collaboration. So we're so excited to celebrate fan culture with our busy families. Trading cards are certainly part of it, but what really excites us is all the pop culture and fan culture categories. The customer response was enthusiastic, and we will launch more exciting content in the future.

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The next question comes from Jefferies Group's Corey Tarlowe.

Corey Tarlowe, Jefferies Research Division

I think the recovery in sales has been remarkable. What's most impressive, is that many of the elements that make up the financial base seem to be improving at the same time, such as inventory turnover, passenger traffic, and high-margin revenue streams. One of the more important strategic questions I would like to ask is, looking ahead to the next 3 to 5 years, where do you think there are the greatest opportunities to further enhance the company's profitability, and these opportunities may not currently be fully recognized by investors?

Michael Fiddelke, CEO and Director

Yes, thanks for the question, Cory. I'll review some of the things we mentioned earlier in preparing our statement. At the beginning of the year, we made plans for the first year, and now it's only been two quarters. We still have a lot of work to do, such as continuing to maintain the positive momentum in certain areas, such as continuously improving the customer experience, ensuring inventory reliability, and re-examining product categories to more clearly recognize our unique strengths and ways to win. But as it stands, we have far more tasks ahead of us than we have already done.

Therefore, I think we are now in a proper state of health: on the one hand, we continue to step up efforts to promote effective methods; on the other hand, we also need to learn from positive customer feedback; at the same time, we are also clearly aware of the work ahead of us. You've also heard about future opportunities in the clothing and home sector that we talked about earlier. I think these are the areas where we are working. But our goal is not just a quarter or two of good results, but continuous, profitable revenue growth. We are confident that our clear strategy will provide us with long-term support to achieve this goal.

Corey Tarlowe, Jefferies Research Division

Understood. Well, I'd like to add that, as you mentioned, looking back at the progress you've made over the past year, it's clear that much of this has been dominated by product sales. What I really want to know is — what aspects of your product sales strategy surprised you the most? What other areas do you think there's still a lot of room for improvement, but don't you think you've really dug deep until now?

Michael Fiddelke, CEO and Director

Kara, maybe you can elaborate on where you're most excited and what you think has the most potential for growth. Cory, I might need to rephrase your question. Yes, we talk a lot about the products we sell. We know it's important to look at the issues from the perspective of the categories we're discussing, but teamwork in retail is critical. Therefore, when our team carries out various activities, our primary concern is to ensure that we can work together.

In order for customers to respond positively to some of the changes we've made, we need to really understand our customers, and this requires the insight and analytical skills of many teams. Of course, this requires strong product display leadership to ensure that we choose a well-planned perspective to better serve customers. But more importantly, it requires a huge team — 400,000 people — to work together to make it happen. From supply chain teams ensuring timely delivery of products, if products don't arrive on time, then all the best product display plans are meaningless; to store teams putting plans into practice at the store level in a human-centered manner unique to Target; to digital teams, they are increasingly creating a “first gateway” for customers before they enter the store.

So I can go on and on about all the teams that made this a reality. So on these occasions, you'll often hear us talk about categories. But I'd like to stop for a moment. Yes, it's the product display, but it covers everything. What excites me, and was mentioned in your first question, is that we have made progress in all of these areas. I believe that over time, these advances will eventually converge into results far greater than the sum of the parts. Kara, if you go back to that question about product display, is there anything else you would like to add?

Cara Sylvester, Executive Vice President and Chief Merchandise Officer

Yes. I would like to go back to the beginning of my statement today to address the seven priority areas we have set out. These are not just product sales priorities; they are also Target's priorities. We believe these areas are in various stages of transformation and development, and they are all moving towards truly achieving our ambitious goals. I think beauty is a great example. Our performance in this category has been very strong over the years. Now we have a new goal.

So next month we're launching a beauty studio project, which isn't just about introducing a new product line, but about bringing a new immersive experience. Lisa mentioned that we will be staffed with a dedicated beauty consultant. We couldn't be more excited about the new chapter that is about to begin. This is an example. Yes, we introduced new beauty products in the first quarter, and we will continue to do so in the second quarter. Our expectations for these seven areas are far more than that. So you'll keep hearing us talk about these areas and where we're headed over the next few years.

Michael Fiddelke, CEO and Director

Operator, I think we still have time to answer one more question.

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The last question came from Morgan Stanley's Simeon Gutman.

Simeon Gutman, Morgan Stanley Research

In fact, Michael, based on what you and Carla just said, if you consider the product display adjustments as a whole, consider the entire store as a whole, and refer to the Investor Day goals to see how many stores, how many products, and how many display maps you can adjust, can you roughly say, you adjusted 30% or 40%? 50% or 60%? What stage are you guys in right now? If you also agree that product and fashion cycles will be shortened, how are you going to continue growing?

Michael Fiddelke, CEO and Director

Looking back at the second quarter of this year, we have developed a clear plan that defines the changes we want to drive this year. I think you've also heard Lisa's words. There are no shortcuts; the only thing you have to do is get down to earth and work hard. So the team has been working hard and we're happy with everything we've achieved so far. We are also very pleased with feedback from some of our customers on these changes. We know we can't be perfect, and we shouldn't make perfection our goal. If we expect everything to be perfect, then we're not driving change hard enough.

However, we are very satisfied with the results we have achieved so far this year, and we are also very pleased with the positive feedback from our customers on these changes. As for the percentage of change completed, I probably need to redefine it too. As Carla mentioned earlier, we want Target to truly win the love and recognition of customers in some ways, and this requires years of hard work. So, yes, we may have completed a certain percentage of change this year, which is indeed a way to measure progress, but our plans go far beyond this year's plans. So you can expect us to continue to innovate and lead change to support the priorities we've discussed before — not only in the third and fourth quarters of this year, but also 2027, 2028, and beyond.

Simeon Gutman, Morgan Stanley Research

Next, I'd like to quickly talk about the most important areas of home and clothing. That's the number of new products coming soon, and haven't we fully promoted them yet? Or is there some kind of success rate that means some products aren't selling well and need more improvements? How would you describe the evolution of these two fields?

Michael Fiddelke, CEO and Director

Kara, it's up to you to decide if you need to add anything. But Simon, I'll emphasize again later, the changes we've made in these categories have shown encouraging results. Of course, we still have a lot of work to do. In the case of categories such as clothing, the seasons change very quickly, and fall will usher in a new collection. We're excited to see what our customers will discover in the second half of the year. We have always said that the construction of the home concept has been a process that has continued for many years, the team is working hard on it, and we are looking forward to the final results it will bring.

Cara Sylvester, Executive Vice President and Chief Merchandise Officer

I'd also like to add one more point. There are different cycles in the home and clothing sector. We've discussed children's products before. Especially in the current back-to-school season and the return to college season, the sales cycle for children's products is very important. As fall begins, we're excited to streamline the shopping experience and bring more exciting products to the women's market. You'll see us continue to step up our efforts in the fourth quarter and ushered in a different clothing sales cycle in the first quarter. Therefore, there are many different cycles in the field of clothing. As we continue to adjust our strategies, you'll see us continue to perfectly blend fashion, design, and value.

Michael Fiddelke, CEO and Director

Thank you all for participating today. Thank you all so much for your questions and support.