Target Corporation’s TGT first-quarter fiscal 2026 performance highlighted an increasingly important contributor that extends beyond merchandise sales. The company's Roundel retail media business continued to gain momentum, reinforcing the value of its growing portfolio of higher-margin revenue streams. While comparable sales, digital growth and traffic drew most of the attention, Roundel quietly played a meaningful role in supporting profitability during the quarter.
Non-merchandise revenues increased nearly 25% in the first quarter, driven by strong growth in Roundel advertising revenues, Target Circle 360 membership revenues and the Target+ marketplace. Advertising revenues alone climbed to $246 million from $163 million in the prior-year period, reflecting continued advertiser demand for Target's retail media platform. The company also noted that Roundel advertising services are recognized either as net sales or as offsets to operating costs, depending on the advertising arrangement, allowing the business to support earnings in multiple ways.
The profitability impact was evident in the quarter's margin performance. Target reported an 80-basis-point improvement in gross margin to 29%, citing growth in advertising and other non-merchandise revenues alongside supply-chain productivity and lower markdowns.
During the first-quarter earnings call, management also identified Roundel as one of the company's high-margin revenue streams that contributed to the stronger gross margin performance, underscoring that retail media is becoming more than an ancillary business. As advertisers increasingly seek direct access to Target's shoppers, Roundel appears to be evolving into an important earnings lever that complements the retailer's core merchandising operations rather than depending solely on additional product sales.
Walmart and Kroger Are Scaling Retail Media Like Target
Walmart Inc. WMT continues to strengthen its retail media platform as a high-margin growth driver. Walmart highlighted that Walmart Connect delivered another quarter of strong advertising growth, supported by expanding advertiser demand, richer first-party customer data and deeper omnichannel capabilities. Walmart also continues to integrate advertising with its marketplace and e-commerce ecosystem, reinforcing the role of retail media in driving profitability beyond traditional merchandise sales. These initiatives indicate that Walmart is increasingly leveraging its digital ecosystem to generate faster-growing, higher-margin revenue streams alongside its core retail business.
The Kroger Co. KR is pursuing a similar strategy through Kroger Precision Marketing. In the first quarter of fiscal 2026, Kroger reported that Kroger Precision Marketing profit increased more than 20%, driven by stronger on-site customer traffic and higher advertiser commitments. Kroger also said its e-commerce business, including media, reached profitability for the first time, underscoring the growing contribution of advertising to earnings. Kroger plans to expand AI-powered advertising capabilities and deepen partnerships with platforms such as Google and TikTok, positioning itself to further scale its high-margin retail media business.
What the Latest Metrics Say About Target
Target has seen its shares rally 20.9% over the past six months compared with the industry’s rise of 2.1%.
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From a valuation standpoint, Target's forward 12-month price-to-earnings ratio stands at 14.86, lower than the industry’s ratio of 30.28. However, TGT is trading above its 12-month median level of 13.52.
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The Zacks Consensus Estimate for Target’s current financial-year sales and earnings per share implies year-over-year growth of 3.9% and 10.3%, respectively. For the next fiscal year, the consensus estimate indicates a 2.9% rise in sales and 6.4% growth in earnings.
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Target currently carries a Zacks Rank #3 (Hold). 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).