How TGT (Target) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a major retailer like TGT (formerly Target Corporation) makes money is essential for investors and anyone interested in the business of retail. In this post, we break down TGT's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick TGT Overview

TGT operates one of the largest discount retail chains in the United States, offering a broad assortment of general merchandise and food through its stores and digital channels. Revenue comes primarily from in-store and online sales of household essentials, apparel, home goods, and groceries. Additional income streams include advertising, credit card profit sharing, and other non-merchandise revenues. The business is organized around its core retail operations, with a growing focus on digital sales and omnichannel fulfillment.

Revenue Breakdown

• Total Revenue (Q3 2025): $25.2B (−0.9% YoY)
  • Total Sales Revenue: $24.7B (98.0% of total, −1.2% YoY)
  • Advertising Revenue: $217M (0.9% of total, +34.0% YoY)
  • Other Non-Merchandise: $141M (0.6% of total, +12.8% YoY)
  • Credit Card Profit Sharing Revenue: $134M (0.5% of total, −6.9% YoY)
  • Growth is powered by strong digital sales, advertising expansion, and continued omnichannel investments, though overall revenue declined slightly year-over-year.

Gross Profit and Margins

• Gross Profit: $6.68B (26.5% gross margin)
  • Cost of Revenue: $18.5B (+4.1% YoY)
  • TGT maintains robust margins due to efficient supply chain management, private label penetration, and scale advantages in procurement and logistics.
• Most costs come from merchandise procurement, supply chain operations, and fulfillment expenses.

Operating Income and Expenses

• Operating Income: $1.91B (+16.8% YoY, 7.6% margin)
• Operating Expenses: $4.77B (−20.8% YoY)
  • R&D: Not separately disclosed; TGT’s innovation investments are embedded within SG&A, focusing on digital transformation and supply chain technology.
  • SG&A: $4.77B (−11.6% YoY, 18.9% of revenue) — Includes store labor, marketing, technology, and administrative costs.
  • TGT continues to control costs and invest in omnichannel capabilities while maintaining operational efficiency.

Net Income

• Pre-Tax Income: $1.22B (−21.2% YoY, 4.8% margin)
• Income Tax: $283M (23.2% effective tax rate)
• Net Income: $935M (−21.6% YoY, 3.7% net margin)
• TGT converts a moderate portion of sales into profit due to its scale, cost discipline, and pricing power, though net income declined year-over-year due to higher cost of revenue and lower pre-tax margins.

What Drives TGT's Money Machine?

• Retail Sales: Over 98% of revenue comes from merchandise sales across stores and digital channels.
• Digital Penetration: E-commerce and same-day services (Drive Up, Order Pickup, Shipt) continue to grow, supporting customer loyalty and higher basket sizes.
• Advertising Expansion: Retail media and advertising revenue surged 34% YoY, reflecting TGT’s growing influence as a marketing platform for brands.
• Omnichannel Investments: Strategic investments in supply chain, technology, and fulfillment drive future growth, though these areas are not yet as profitable as core retail.

Visualizing TGT's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant costs and investments, 3.7% of revenue drops to the bottom line.

Key Takeaways

• TGT's money comes overwhelmingly from merchandise sales in its retail stores and digital platforms.
• High gross and net margins illustrate the power of TGT's scale-driven retail model and supply chain efficiency.
• Heavy investment in omnichannel and digital capabilities, balanced by disciplined control of SG&A costs.
• Ongoing growth is driven by digital sales, advertising, and operational innovation.

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FAQ About TGT's Income Statement

1. What is the main source of TGT's revenue in 2025?

TGT generates over 98% of its revenue from merchandise sales in its stores and digital channels. Additional revenue comes from advertising, credit card profit sharing, and other non-merchandise sources.

2. How profitable is TGT in Q3 2025?

TGT reported net income of $935M in Q3 2025, with a net margin of approximately 3.7%, reflecting moderate profitability driven by efficient operations and scale, though net income declined year-over-year due to higher costs.

3. What are the largest expense categories for TGT?

The biggest expenses on TGT's income statement are cost of revenue (primarily merchandise procurement and supply chain) and operating expenses, particularly Sales, General & Administrative (SG&A) costs. SG&A reached $4.77B in Q3 2025, as TGT prioritizes store operations, digital investments, and marketing.

4. Why does digital/omnichannel fulfillment operate at a lower margin?

Digital and omnichannel fulfillment, despite driving higher sales and customer engagement, posted lower margins in Q3 2025. This is because TGT aggressively invests in technology, supply chain, and last-mile delivery, believing these will drive long-term growth—even if the division is less profitable today.

5. How does TGT's effective tax rate compare to previous years?

TGT's effective tax rate in Q3 2025 was 23.2%, consistent with previous years. This moderate rate is primarily due to standard U.S. corporate tax rates and some benefits from tax planning and share-based compensation.