Target's Earnings Doubled, and $1.65 of It Came From a Tariff Refund
Comparable sales rose 3.8% on stronger traffic, but the headline earnings figure of $4.11 a share included a one-time benefit from duties the Supreme Court invalidated in February.
Target reported second-quarter earnings of $4.11 a share on Wednesday, double the $2.05 it earned a year earlier, on net sales that rose 5.3%. Comparable sales grew 3.8%, ahead of the roughly 2.4% Wall Street expected, driven by a 3.6% increase in comparable traffic.
Then there is the footnote: $1.65 of that $4.11 came from tariff refund benefits.
The refund shows up in earnings
This is the first earnings season in which the Supreme Court's February decision invalidating the emergency-powers tariffs has landed visibly in corporate results. The Court of International Trade ordered refunds in March; the government has appealed the scope of that order, and the case is pending before the Federal Circuit.
Companies have taken very different approaches to recognizing the money. Some disclose a range and recognize nothing. Target booked a benefit large enough to account for 40% of its reported earnings per share.
That does not make the quarter fake — the refund is real money for duties genuinely paid — but it does mean the comparison to last year overstates the improvement in the underlying business. Excluding it, earnings rose closer to 20% than 100%.
The operating story underneath
Traffic is the number that cannot be manufactured. A 3.6% increase in comparable traffic means more people walked in or logged on, which is the hardest thing for a retailer to buy and the best evidence that a turnaround is real.
Digital comparable sales rose 8.7%, led by same-day delivery growth above 25%. Store comparable sales rose 2.7%.
Two quarters, one direction
The chief executive who took over on February 1 inherited five consecutive quarters of declining comparable sales. There have now been two consecutive quarters of increases, with the company having raised its full-year outlook after the first.
The test comes in the fourth quarter, when the tax-refund tailwind that helped the spring is gone, the tariff refund benefit does not repeat, and the holiday season measures the strength of a consumer whose sentiment reading is near record lows.
