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Target CEO: 'Stores are still important' for retail

  • Target has plans to open more than 130 small-format stores by 2019.
  • The company has also set a goal of remodeling 1,000 of its 1,800 stores by 2020.
  • Over half of Target's digital sales growth is enabled by its stores, CEO Brian Cornell told CNBC.

Physical stores are still a vital component to retailers' businesses, Target Chief Executive Brian Cornell told CNBC's "Squawk on the Street" Wednesday morning.

Over half of Target's digital sales growth is enabled by stores, Cornell explained. That includes shoppers ringing up purchases online before picking them up in person, or shoppers browsing Target's aisles before buying something from Target.com.

Target's stores are also increasingly serving as fulfillment centers — 1,400 of them can act in that capacity today. And heading into the holidays, the retailer's stores could support north of 80 percent of online orders, according to Cornell.

Target on Wednesday reported fiscal third-quarter earnings and same-store sales that outpaced Street expectations. But an underwhelming outlook for the fourth quarter, which includes holiday sales, sent Target's stock tumbling more than 8 percent.

"While we expect the fourth-quarter environment to be highly competitive, we are very confident in our holiday-season plans," Chief Executive Officer Brian Cornell explained in prepared remarks.

Target ended its third quarter with more than double the number of small-format stores. Opening pint-sized locations in urban markets is a key part of the retailer's turnaround strategy, as Target has said those smaller stores are notably more profitable than other sizes in its portfolio.

Target now has more than 1,800 locations, including 276 stores larger than 170,000 square feet. It has 44 stores smaller than 49,999 square feet and plans to have more than 130 such small-format stores by 2019.

Meantime, Target is refurbishing its existing, larger stores. Target said it completed 37 store remodels during the latest period and will have finished 110 renovations by the end of the year. Same-store sales at remodeled locations should rise as much as 4 percent, according to Cornell.

The company has set a goal of remodeling 1,000 stores by 2020.

"I'm surprised with the reaction," Cornell told CNBC Wednesday regarding the retailer's falling share price. "We had a really solid third quarter ... [and store] remodels are delivering exactly what we expected. We expect that to continue in the fourth quarter."

Target's digital sales climbed 24 percent in the latest period but still account for only 4.3 percent of total company sales. According to Cornell, the shift of spending done online versus offline will evolve over time, but Target's stores will continue to support digital sales by fulfilling internet orders.

He added that Target's "value strategy" to cut prices on everyday essentials is "driving trips" back into stores, and into certain brands. Beauty, home goods and apparel have all been core areas of focus.

With Wednesday's declines, Target shares have fallen more than 24 percent in 2017, compared with Wal-Mart's gain of 31 percent over the same period.

But for Target, the company will remain focused on investing in itself, Cornell said. Additional private-label brands are expected to launch in the coming months, and shoppers can expect to see further innovation in the grocery department.

— CNBC's Courtney Reagan contributed to this reporting.