Target Looks to AI for Sales Momentum Through Personalization

CEO Michael Fiddelke said in a Tuesday (March 3) earnings press release that the company seeks to deliver “an elevated and differentiated shopping experience, advancing our use of technology.”

The digital channel remained a bright spot. Comparable digital sales rose 1.9% in the quarter, while store-originated comparable sales fell 3.9%, resulting in an overall comparable decline of 2.5%, according to the release. Digitally originated sales represented 23.7% of merchandise sales in Q4, up from 22.8% a year earlier.

Same-day delivery powered by Target Circle 360 grew more than 30% in the quarter, per the release.

Loyalty members remain central to the company’s economics as members of the company’s loyalty program, Target Circle, spend three times more on average, according to an earnings presentation. Those enrolled in Target Circle 360 with unlimited same-day delivery spend seven times more.

During a Tuesday earnings call, executives repeatedly referenced AI as a practical enabler. Fiddelke described “our investments in AI to make search more conversational, almost like having a personal shopper,” and he said the company’s AI-driven personalization engine “generates billions of dollars in incremental sales.” Chief Guest Experience Officer Cara Sylvester pointed to an AI-driven personalization engine, built around the Target Circle ecosystem, with the ability to deliver tailored offers and rewards that drive engagement and repeat visits.

Segment Performance and Consumer Signals

Quarterly net sales totaled $30.5 billion, down 1.5% year over year, per the release. Within merchandise, performance varied by category. Food and beverage rose to $6.6 billion from $6.5 billion in the prior year quarter. Beauty increased to $3.48 billion from $3.44 billion. By contrast, apparel and home furnishings declined, reflecting softer discretionary demand. Non-merchandise sales grew more than 25%, with membership revenue more than doubling year over year, double-digit growth from Roundel and over 30% growth in marketplace.

While comparable sales were negative overall, management cited improving trends as the quarter progressed. Executives said sales and traffic trends accelerated in the final two months of the quarter, and Chief Financial Officer Jim Lee said top-line performance “accelerated further in February, resulting in very healthy top-line growth in the first month of this new fiscal year.”

The transaction data underscores the environment. The 2.5% comparable decline was driven primarily by a 2.9% decrease in transactions, while average ticket rose 0.4%, per the release. That pattern suggests steadier essential spending with softer discretionary traffic, a dynamic consistent with broader retail trends.

Profitability, Margins and AI Investment

Gross margin expanded to 26.6% from 26.2%, reflecting lower inventory shrink and supply chain efficiencies, according to the release. CFO Lee said during the call that last year’s shrink improvement delivered roughly 90 basis points of benefit and returned shrink to pre-pandemic levels.

The company plans to reinvest more than $2 billion in 2026, including $1 billion back into the P&L and more than $1 billion in incremental capital expenditures. Lee described these as ongoing step-ups, including store labor, merchandising transitions, brand marketing and technology.

“We’re planning to grow net sales in a range around 2% versus last year,” Lee said, adding that operating margin is expected to run about 20 basis points higher than 2025’s adjusted rate.

Fiddelke framed the strategy as disciplined repositioning as he emphasized that the company’s path to growth and share gains is “fully within our power to drive.”

Shares were up 6.7% Tuesday.