Target Corporation TGT is witnessing strong momentum in its non-merchandise businesses, which are emerging as important contributors to revenue growth and profitability. The company's advertising platform, Roundel, Target+ marketplace and Target Circle 360 membership program are expanding rapidly, creating opportunities to generate higher-margin revenues beyond traditional merchandise sales. The second-quarter fiscal 2026 results highlighted the growing importance of these businesses to Target's financial performance.
Non-merchandise sales increased 20.1% year over year during the quarter, significantly outpacing the 5% growth in merchandise sales. Roundel's gross billings advanced nearly 20%, while gross merchandise volume (GMV) on the Target+ marketplace surged more than 40%. Target Circle 360 membership revenues also increased more than 40%, reflecting continued momentum across the company's digital advertising, marketplace and membership offerings.
These businesses are contributing to Target's profitability as well. Management highlighted their outsized contribution to top- and bottom-line growth, with higher-margin revenue streams supporting gross margin expansion. Excluding tariff refund benefits, the company's gross margin rate improved approximately 100 basis points year over year, partly reflecting continued growth in advertising and non-merchandise sales.
While these businesses represent a smaller portion of Target's overall sales, their faster expansion highlights an evolving revenue mix. The sustained expansion of these businesses suggests that Target is developing additional earnings opportunities beyond product sales.
How Does Target Stack Up Against Its Industry?
Target, which competes with Dollar General Corporation DG and Costco Wholesale Corporation COST, has seen its shares rally 14% over the past three months compared with the industry’s 0.3% rise. Shares of Dollar General and Costco have jumped 3.1% and 2.2%, respectively, in the aforementioned period.
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What Does Target’s Current Valuation Suggest?
From a valuation standpoint, Target's forward 12-month price-to-earnings ratio stands at 15.77, lower than the industry’s 27.76. However, the stock is trading above its 12-month median level of 14.93.
Target is trading at a discount to Costco (forward 12-month P/E of 41.03) but at a premium to Dollar General (15.41).
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What Do Earnings Estimates Signal for Target?
The Zacks Consensus Estimate for Target’s current fiscal-year sales and earnings per share implies year-over-year growth of 5.1% and 37.8%, respectively. For the next fiscal year, the consensus estimate indicates a 3.1% rise in sales but a decline of 9.5% in earnings per share.
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Target’s Investment Case
Target’s improving traffic, stronger digital momentum, broad-based category growth and better inventory reliability indicate that its refreshed strategy is gaining traction. Same-day delivery growth, continued price investments and higher-margin revenue streams further strengthen the operating backdrop. Management also raised fiscal 2026 sales and EPS guidance, reflecting greater confidence in underlying momentum. These factors support a constructive investment view on this Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).