Investor Stephanie Link believes Target is a strong brand making a comeback, with recent improvements in product selection and customer service signaling a turnaround. The company is investing $6 billion under new leadership to enhance store operations, marketing, and leverage AI.
Link, a long-term shareholder, sees Target returning to its strengths of combining value, convenience, and style. Despite a stock rally, shares remain below their 2021 peak, suggesting further upside potential as profitability improves.
Investor Stephanie Link is optimistic about Target's (TGT) comeback, believing the retail giant is poised for a strong performance heading into the holiday season. Link, who has been a long-term shareholder, noted a significant improvement in both product selection and customer service during recent shopping experiences, reinforcing her positive outlook based on the company's financial performance.
Target, with over 2,000 U.S. stores and a strong brand presence, is strategically investing $6 billion under its new CEO, Michael Fiddelke. This investment plan focuses on enhancing store operations, revamping the leadership team, and boosting marketing efforts, including leveraging AI for personalization. These initiatives aim to rebuild brand loyalty and attract customers seeking value, a key trend in the current economic climate.
The company has faced challenges with inconsistent execution and a subpar shopping experience in the past, which impacted its stock performance. Despite a rally this year, shares remain below their 2021 peak. However, Link believes Target is returning to its core strength: combining affordability and convenience with stylish, appealing products.
Fiddelke, who has a long history with Target, starting as an intern and progressing through CFO and COO roles, is spearheading this transformation. The $6 billion investment is allocated to store openings and renovations, supply chain improvements, and increased resources for frontline employees. Recent leadership changes include a new COO, chief supply chain officer, and chief marketing and guest experience officer.
As a customer, Link has personally observed the improvements in the in-store experience, which she attributes to increased investment in staffing and training. This focus on frontline employees is crucial for addressing past issues of understaffing and poor stock availability. The company reported a comparable sales increase of 3.8% and a traffic increase of 3.6% last quarter, indicating positive customer engagement.
Target is also recommitting to its brand marketing after years of underinvestment. The strategy emphasizes trend-forward products, exclusive partnerships, strong design, and affordability. AI and personalization tools are being implemented to enhance product discovery and drive digital conversions.
Financially, Target's profitability is improving, although the latest quarter benefited from a tariff refund. Excluding this, margins are trending positively. Link projects earnings per share of $9 to $11 over the next 12-18 months. Although the stock has risen over 61% year-to-date, it still has potential for further growth, trading approximately 40% below its 2021 high.
Link's investment philosophy centers on identifying strong brands that have fallen out of favor but are undergoing positive changes under new management. She sees this pattern at Target, highlighting improved decision-making and a willingness to take calculated risks. Despite the stock's recent run, Link believes Target is becoming a destination again and offers significant upside potential.
Stephanie Link is the Chief Investment Strategist at Hightower Advisors. She has 35 years of experience in money management and serves on KKR's investment council.
