Can Target's New Circle Deal Days Spark a Turnaround for the Retail Stock

Target (NYSE: TGT) has been one of the biggest flops in the retail sector since the pandemic ended.

Over the last five years, the stock is down 30%, and is off more than 50% from its all-time peak around the same time.

The company has struggled with theft, inflation, stiff competition from Walmart, Costco, and Amazon, a shifting political stance that has alienated its customers, and a deteriorating in-store experience that have contributed to a decline in comparable store sales.

Now, a new CEO has breathed new life into Target stock and investors see an opportunity for a turnaround. In a year when the S&P 500 is down, Target is up 18% year-to-date through March 23, largely because new CEO Michael Fiddelke has instilled a sense of confidence in the company's turnaround potential, even after middling fourth-quarter results earlier this month.

Fiddelke hasn't wasted any time in rolling out new ideas to recover lost business, and a key test for the company is coming this week: Target's Circle Deal Days.

Image source: Target.

What is Target Circle Deal Days?

Target's Circle Deal Days is a three shopping promotion from March 25-27, seemingly designed to compete with Amazon's Big Spring sale, to promote Target Circle, its free loyalty program, and a Target Circle 360 membership program that offers similar benefits to Amazon Prime.

Target Circle Deal Days offers 40% off or more on a wide range of items, and members who join Target Circle will get 15% off on one shopping trip. The focus on loyalty is part of a larger strategy under Fiddelke, which includes experiential benefits and rewards in specific categories like beauty or Starbucks.

Circle Deal Days also gives the retail stock a chance to draw customers to its store, at a time when it wants to show customers that it's spruced up its stores with a refreshed product lineup, renewed commitment to customer service, and revamped store layouts.

Fiddelke's top objective should be returning the business to comparable sales growth, and Circle Deal Days gives it a good opportunity to do so. Not only should the event itself drive increased sales, but it also gives Target a chance to boost its loyalty membership, including Target 360, to show off its stores, and convince customers it's lost to start shopping there more.

Target's comps have been down for the last four quarters and 11 of the last 13 quarters. That's an awful track record for any retailer and shows that there's more than one problem weighing on Target's performance. However, it also gives Fiddelke a low bar to grow the business from. Target can win back those customers, and the plan to revamp the in-store experience, improve loyalty, and drive ancillary revenue streams is clear.

Is Target a buy?

I've been a shareholder of Target for several years now, patiently waiting out the post-pandemic malaise.

The retailer has a lot of things going for it. It occupies a unique space among multi-category retailers with its cheap chic reputation, and it serves urban, suburban, and rural markets well, something that peers like Walmart have struggled with.

However, Target has clearly faltered in recent years due to what appears to be a combination of mismanagement, tougher competition, and a challenging macroeconomic environment.

Target now trades at a price-to-earnings ratio of just 14, which is much cheaper than peers like Walmart, and it offers a dividend yield of 4%.

That's an attractive valuation and yield, but I'd like to see a clearer sign that Target's turnaround efforts are paying off. Fiddelke is saying the right things, but Target has disappointed investors enough times in the last few years that they should know not to get ahead of themselves with hopes of a recovery.

Target offered modest guidance, calling for just 2% net sales grow this year. If the company raises that guidance, that would be a clear buy signal from management, showing that the turnaround is indeed paying off.

Jeremy Bowman has positions in Amazon and Target. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.