What tops Target's holiday wish list? Bringing back 'Tarjay'

Its logo may still be a bull's-eye, but Target hasn't hit one in a while.

So it's no wonder that the retailer's shares are rallying, recently up more than 7 percent in midday trading, in the wake of its latest earnings report, which showed its first same-store stales increase in four quarters and earnings that outpaced analysts' expectations.

While these latest results suggest Target may be beginning to recover under new CEO Brian Cornell, a former PepsiCo executive who has been at the helm for 99 days, analysts' expectations will no doubt ratchet higher in the months ahead, especially given that the critical holiday season is upon us.

"We have spent a lot of time making sure we are clear about the strategy," Cornell told CNBC in an interview at one of Target's Minneapolis stores. "What does the guest expect from Target. How do we get that 'Tarjay' back."

Cornell's strategy has been to focus on Target's "signature" categories, which include baby and children's products, home furnishings and style. He also is intent on improving the companies' Canadian operations, which have been a drag on its earnings, and its online presence, which critics say lag its rivals.

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"[Target] needs to get back to the 'Tarjay,' it's been awhile since we have had that perception," said Bob Drbul, equity analyst at Nomura, in an interview conducted ahead of the retailer's earnings report.

Take YouGov's BrandIndex, it recently gave Target a "buzz" score of 14. The score measures daily brand perception among consumers. Last December, prior to word of Target's credit card data breach, the retailer's score was at 28. After the breach, its brand perception sunk as low as -32.5, on the index's -100 to 100 scale, where zero is neutral.

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Not so long ago, the discount retailer was attracting a more fashion-savvy shopper, hitting the stores to seek out designer collaborations. But it has been awhile since Target has had that cache with consumers. Patrick McKeever, managing director at MKM Partners said the strong memory of the Missoni-collection website crash and last holiday's lackluster Neiman Marcus partnership has Target acting with more caution than before.

"They kinda stopped being a merchant, and were running the business through the accounting department. But I think they are getting better at re-focusing on merchandise," said David Strasser, an analyst at Janney Capital Markets. "I think they need to take more risk with their inventory, the [retail] world is too competitive too be unwilling to take risk."

Sterne Agee retail analyst Chuck Grom also suggests Target needs to inject more energy in its advertising and at its stores. He said, "there used to be excitement in the ads, and there used to be excitement in the stores. Now, you walk in and it feels kind of like a Wal-Mart, but it's red, not blue."

Joe Feldman, analyst at Telsey Advisory Group thinks Target can more easily recover the right merchandise mix than the execution of its marketing promise.

"Target is better than anybody else when it comes to the message and marketing, but then you go into the store and it doesn't always translate."

Feldman thinks Cornell may be able to help follow-through on the promise. "Execution has been the issue, but Cornell has been an executor in his past roles."

McKeever said, "The cool factor has been lost partly because Target has been fighting other fires."

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The retailer's fires have included fumbles online, disappointing and costly international expansion and a massive data breach during the most critical time of year.

But the latest quarter saw an improvement in Target's traffic, with its best performance in four quarters in the store.

Cornell said he is intent on changing the in-store and online experience.

"We want to delight our guests," he said, explaining that he wants shoppers to come to Target during the holiday season and have a great experience that they will want to share with their friends.

According to McKeever, getting more shopping in the door is critical to Target's turnaround.

"Traffic at U.S. stores is the biggest issue for Target, but only slightly edging out what's happening with Target Canada," he said.

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Cornell told CNBC he will be watching performance at its Canadian stores very closely over the next six weeks.

"I'm going to analyze and assess every store in Canada, and every store has to improve," he said.

However, Nomura's Drbul said he's skeptical on how quickly Target can fix the issues with its Canadian stores, which have so far cost the retailer about $2.1 billion before interest and taxes items.

"Before Target gives up on Canada, the team needs to try to improve it. Then it depends on the rate of improvement and performance going forward for how long shareholders will give them to fix it. At some point, shareholders would be receptive to selling it, I think," Drbul said.

Grom thinks it's the holiday season that will determine what happens with Target's Canadian operations. "Canada either gets fixed next year or they get rid of it. I think the jury is still out on whether they go down that path or not. I think what happens in the next month or two will be indicative about which path they will take," he said.

According to Cornell, Target has already improved supply chain issues in Canada, which has help improve its ability to stock shelves.

Target has a lot to prove to shoppers, and Wall Street. Ahead of Wednesday's earnings report, the majority of analysts were neither positive nor negative on Target. Fourteen analysts had a "hold" recommendation on Target shares, seven analysts told clients to "buy" shares of the retailer, and two had "sell" ratings on the stock.

Janney's Strasser had a hold recommendation on shares.

"If Target gets people in their stores, it's positive, but with the stock at $67 a recovery is built-in already," he said, noting Target's valuation is relatively rich compared with other retailers like Wal-Mart, Dollar General, Dollar Tree, TJX and Ross Stores.

As for Cornell, he said he is "optimistic" about the holidays, but also "cautious."

"I feel very good about the first couple of weeks of the quarter," he told CNBC. But he noted the holiday season, like his tenure at Target, is in its very early days.

"It's still really early," he said of the holiday season. "It's going to be competitive."