What's driving our turnaround: Target CFO

Target's transformation: CFO
Target's transformation: CFO   

Target made several bets that paid off in the fourth quarter, and expects its investments to continue to propel it to success, Chief Financial Officer John Mulligan told CNBC on Wednesday.

Earlier in the day, the retailer reported a stronger-than-expected jump in same-stores sales and profits. Comparable sales at stores open longer than a year rose 3.8 percent in the fourth quarter, which was a "pleasant surprise," Mulligan said in an interview with "Power Lunch."

He attributed the strength to several factors, including discounted gift cards sold on Black Friday being used in January, stores bouncing back quickly from the holiday season with new products and the retailer's investment in wellness, which was important for those looking to start the new year in a healthy way.

Read MoreTarget earnings beat estimates

In addition, cutting Target's free-shipping minimum for Internet purchases from $50 to $25 is "one of the best investments we can make," Mulligan said.

"When we look at a guest who shops our stores routinely, if we can convert them and get them to shop online, automatically we get more sales because they're shopping online. But they actually increase their engagement with us in the store with us as well," he explained.

Mulligan said that means a significant increase in both sales and gross margin dollars or profitability with that guest.

Target
Scott Mlyn | CNBC

The slowdown at the West Coast ports also did not have a material impact on Target's business in the fourth quarter, thanks to the hard work by its teams, he said.

"Our teams did a fantastic job over the fourth quarter in mitigating the slowdowns. We ordered some things early, we moved them around, we expedited several different things to ensure we had the inventory in place."

Now, however, there are some places in stores that are light on inventory, but Mulligan said he doesn't expect it to last long.

"As we see the port situation continue to improve, we expect that to resolve itself relatively quickly," he said.

West Coast ports and the dockworkers union reached a tentative labor deal Friday after nine months of negotiations. The dispute disrupted the flow of cargo through the 29 ports and caused huge backlogs.

Meanwhile, recent announcements by Wal-Mart and TJX that they are boosting workers' pay will have no material impact on Target because it has always been part of the retailer's normal course to evaluate wages, Mulligan said.

"As we think about compensation, we are constantly evaluating the marketplace and ensuring that our wages are competitive. There is not a store today where we pay federal minimum wages."

Read MoreWal-Mart ripple effect begins

Wal-Mart and TJX have both said they will soon start paying hourly workers $9 an hour, bumping it up to $10 an hour in 2016 for many workers.

Target has a ... target
Target has a ... target   

For analyst Liz Dunn, founder and CEO of Talmage Advisors, Target's story right now is about leadership and what's ahead for the company. She thinks the retailer's focus on new categories, like wellness, is working and is bullish on Target's future.

"They really do want to focus on differentiation" in categories like style, baby, kids and wellness, she said.

"I think the wellness initiative is something very, very significant and they're highlighting a lot of different brands that other people don't have."

Read MoreCramer: Wal-Mart should be worried about Target

However, analyst Patrick McKeever with MKM Partners believes things will slow down slightly for Target. While store traffic was up 3.2 percent in the fourth quarter, such traffic was down 5.5 percent during the previous fourth quarter, he said.

"On a two-year basis, which … is an important thing to look at, traffic was down. So I think as they come up against tougher comparisons you'll see the top-line, that comp number, slow a bit," said McKeever.

In addition, the company's guidance for the first quarter is a 2 percent increase in same-store sales, and that "implies that things will slow down a bit," he added.

McKeever prefers names like Big Lots, DSW, Kohl's and TJX.

Disclosures: Liz Dunn, her family and her firm do not own Target. Patrick McKeever has no positions in Target, Big Lots, DSW, Kohl's and TJX.

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