Investors had high hopes heading into Target's (NYSE:TGT) second-quarter earnings results, and the Wall Street favorite didn't disappoint. Sales growth was strong, even compared to soaring demand from a year ago. And Target's profit margins continue expanding despite higher expenses.

Those wins have CEO Brian Cornell and his team projecting a great second half of the year ahead, one that might deliver even more gains for shareholders. Let's take a closer look.

A woman checks her smartphone while shopping.

Image source: Getty Images.

Market share boost

Target didn't issue a market share estimate this quarter after noting in late May that it gained roughly $10 billion in new business since the start of the pandemic. Yet all the signs of continued growth on this core metric were there.

Sales rose 9% in Q2 on top of 23% growth a year ago. The e-commerce segment contributed to those gains, but rising customer traffic was the biggest factor. Target handled 13% more transactions this quarter than it did a year ago. For context, traffic was up 3% in 2019 and 5% in 2018.

Target's 15% traffic spike in the first half of 2021 suggests it has hit on an unusually strong retailing platform to meet today's consumer needs. "We've spent years building and investing in the durable model we have today," Cornell said in a press release, "which is supported by a differentiated strategy and the best team in retail."

Climbing margins

Target's profitability continued to push further away from peers, too. While expenses rose, the chain enjoyed higher prices and a shift in demand toward premium products and less reliance on promotions.

TGT Operating Margin (TTM) Chart

TGT Operating Margin (TTM) data by YCharts

Overall, operating margin held steady at 10% of sales, or about double Walmart's (NYSE:WMT) rate. Those results "reinforc[ed] Target's leadership position in retail," Cornell said. Operating earnings jumped to $2.5 billion, compared to $2.3 billion a year ago, and beat most investors' expectations.

A fresh outlook

Target is still busy spending cash on a long list of growth initiatives, which mainly involve building a multi-channel infrastructure around its store base that can accommodate all the extra volume it has won since early 2020. The short-term outlook is bright, with comps likely to rise in the high single digits over the next two quarters.

Profitability will fall in that period, according to management, due to rising spending and higher transportation and wage expenses. But the full-year margin rate should still be over 8%, or 2 full percentage points higher than Target had managed before the pandemic struck.

Meanwhile, the sales gains in attractive consumer niches like apparel, toys, and home furnishings have executives eager to extend Target's presence and capitalize on its momentum as a trusted multi-channel retailer. "Even after unprecedented growth over the last two years," Cornell explained, "we see much more opportunity ahead."

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