Target is positioning itself to rebound from setback, analyst says

This is a reset, Target playing the long game: Chen

"We are witnessing seismic shifts in retail," Cowen & Co. retail analyst Oliver Chen said during an interview on CNBC's "Power Lunch." "Target is resetting itself, rethinking itself and needs to reposition its best assets."

Today consumers are placing more value on convenience and the ease of shopping, Chen told CNBC on Tuesday, as big players like Amazon have come into the industry and changed the pace of the game for everyone.

Wal-Mart, for example, has made some major changes to its operations as of late, taking aim at Target with new technology.

"Setback is a setup for a comeback" when it comes to Target, Chen said. The big-box retailer is putting up money to invest in areas where the company knows it must be reinvented, he said.

Target reported sales and earnings Tuesday that missed Wall Street's expectations, and the stock sank more than 13 percent in early trading, putting it on pace for its worst day since Aug. 31, 1998.

Target's gross margin was impacted during the fourth quarter due to elevated markdowns and an increase in digital sales, the company said in its press release. The Minneapolis-based retailer said it plans to continue to invest in lower gross margins in the coming quarters, to ensure its prices remain competitive.

"[Target] is taking margins down, but are they going low enough?" UBS analyst Michael Lasser asked during the "Power Lunch" interview. "We don't know."

To please investors, Target should be aiming to drive sustainable sales and earnings growth, Lasser said.

Overall, Target remains a "well-loved brand," especially by key demographics of shoppers, Chen added, and the retailer is "facing the music" of the retail revolution that exists today. "This is really a test … of how they manage setback."

— CNBC's Krystina Gustafson contributed to this report.